The Credit Crisis of the Century

The financial crisis of 2007 should be called the credit crisis of this century. Many Americans may think that the financial crisis is a global catastrophe affecting everyone. Although no one is particularly responsible for the financial crisis in 2007, understanding the subprime mortgage, collateralized debt obligations, credit default loans, and frozen markets can explain the economic damage that still exists today . The financial crisis in 2007 was a big cycle. It first summarizes the two groups of people who do not have a previous history of direct relationships.

Since the 1930s, the credit crisis has been one of the biggest threats to the global financial system. It is therefore natural that this crisis has brought unprecedented instability in the financial markets and has led to significant losses for many investors. Let's look at market trends during the credit crisis and loss of trust in investors. From the outset, the credit crisis was mainly reflected in the bond market, as investors began to avoid dangerous assets and began supporting super secured US Treasury bonds. The chart below shows the option adjustment spread (OAS) for Merrill Lynch Bond Index. The National Organization of the United States reflects the additional compensation that investors need to purchase corporate bonds, not ultra safe Treasury securities.

Sluggish performance in bonds and stock markets is the most obvious reflection of the credit crisis. Not so obvious, but more important is the change in investor confidence. At the most basic level, modern financial systems depend on trust and trust among investors. Without such trust, dollar bills are simply a piece of paper and share certificates are not worth it. The most dangerous aspect of the credit crisis is that this confidence is beginning to decline as investors cast doubts on the ability of banks and other financial institutions to pay. Based on the modern financial system, such a drop in confidence ceased. Therefore, the credit crisis is bringing such a serious threat. (For more information on this issue, please see Analyzing Bank's Financial Statements.)