Why the ‘long, painful correction’ is nowhere near over
Rate cuts that began in August 2007 won’t be reversed any time soon.
By Tom Stevenson
04 Aug 2012
Where were you when the global financial crisis began five years ago this month? I remember the start of the credit crunch in August 2007 as if it were yesterday, ironically because I nearly missed it altogether.
When we headed off to our friends’ log cabin for our summer holiday in the New England woods all was well.
When we emerged a couple of weeks later all hell had broken loose and the journey to today’s income-hungry world had begun. The events of which we were blissfully unaware as we enjoyed our Thoreau at Walden Pond moment added up to the first full-blown panic of a crisis that had been quietly brewing for the six months since HSBC blamed US sub-prime loans (whatever they were!) for its first ever profits warning.
Two months later, mortgage lender New Century Financial filed for bankruptcy, then in June, Bear Stearns bailed out one of its hedge funds, let another go under and halted redemptions at a third. By July, home foreclosures were running at almost twice the level of a year earlier.
In early August, shortly after we lost radio contact with the outside world, BNP Paribas stopped investors redeeming cash from some of its funds, saying that the turmoil in the sub-prime market meant it was unable to value them.