Financial crash warning: 10 years on from 2007 crisis experts warn debt bubble could burst

Wednesday, August 9, 2017
By Paul Martin

A DECADE since the financial crisis brought the world to its knees, experts fear a repeat could again shatter the global economy.

Wed, Aug 9, 2017

The start of the sub-prime housing crash that obliterated banks and financial markets across the world is pin-pointed to August 9 2007.

On this day, banking giant BNP Paribas Investment Partners announced it had suspended the valuation for three of its funds exposed to the US sub-prime housing market because of “the complete evaporation of liquidity in certain market segments of the US securitisation market”.

The subsequent collapse in US house prices triggered the worst economic recession since the Great Depression, with banks and entire countries needing bail-outs.

Worryingly, the US economy and housing market has many similarities today to 10 years ago.

As in 2007, the unemployment rate is at around four per cent and the American central bank is raising interest rates.

After years of growth, house prices are at record highs.

At the same time, stock markets have hit their highest ever values, while the values of corporate bonds, or debts, have also increased sharply.

However, US house prices are not out of line with households income, which suggests a house crash is less likely, according to experts.

John Higgins from Capital Economics said: “Although the Case-Shiller national home price index is a bit higher now than it was at its pre-crisis peak, ratios of home prices to disposable income are broadly in line with their averages since 1975.

“By comparison they climbed far above these averages in the mid-2000s.

“Mortgage rates are lower and mortgage debt is smaller as a share of disposable income.

“Banks have tightened their lending criteria and adjustable rate mortgages are less common.”

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