If you have been following the stock markets around the world in the last 3 weeks, you would have noticed that it's been gyrating up and down (mostly down).This is because of the subprime mortgage crisis emanating from the United States - where financial institutions lend monies to borrowers with bad credit histories (basically borrowers with a high default rate), the loans are then repackaged as bonds and then sold to investors and banks from around the world.  The bad debts from the subprime market is just starting to flow through and many funds and financial institutions have had to closed their doors to investors.  No one knows how bad the real situation is, and as a consequence, both investors and financial institutions are pulling back - resulting in a credit squeeze in all markets.If this situation continues, we could have a similar repeat of the 1997 Asian Financial crisis - but this time, it would have an impact around the world.What happens in the next few weeks will be crucial.Tonight, the European Central Bank has taken the first step to try to stem this liquidity crisis by providing loans to banks who have been hit by the subprime mortgage collapse.  The amount ($130.2 Billion USD) is unprecedented.What is your opinion on this?Should our central banks rescue these financial institutions from their bad lending practices?Or should we just let them go bankrupt and possibly resulting in a world wide recession?  

Hmmm good topic for discussion maybe better as forum but as the world becomes more global and less localized such things as the "asian crisis" will be less located to one area. So bailing out these lenders, hedge funds, brokerages, etc.... will I think in fact hurt in the long run by keeping people in the business who should've lost for bad business practice of lending to people with extremely bad credit and high default risk.

Then to have the industry itself makes changes causing the problem looks like one hand slapping the other. The global effect of this shows how and why major economic powers will be less likely to place major embargos or even war against each other. The interdependency is so inter-twinded that to bail out various groups keeps people with bad business practices and principles in business and potentially a future problem. Plus it also will not spurn government action to prevent future such problems.

People get bad credit for a REASON, they have a problem with money, giving these people bigger loans, when already on the bad side, is a nice gesture, but they should know the risk.

Stupid attempt to make a few extra $$ gone bad.

Let them sink

Letting this crisis take its natural course could be dire. Central banks helping out is the best thing to do, but measures must be taken and loop holes closed to stop a repeat of the same thing. Commercial Banks should also be penalised for their dodgy tactics.

punisher makes some good points

The US, with its own money and through the IMF, did bail out Asian countries when their banks and central banks got into dire straits in 1997. As the world is very interconnected at this point, allowing a lot of financial institutions and funds to collapse could cause a lot of pain in a lot of places far from where it started. Nobody wants that.

When the US and the IMF did step in back in 1997-8, however, it did so with strings attached. It demanded reforms and austerity measures (some of which were misguided and did damage). There was a lot of pain.

There has been a lot of bad practices going on in the US for a while now - from dodgy bank business to huge government deficits - and despite the fact that economists like Paul Krugman have been warning about it for years, few have been listening.

So now, reforms are definitely needed. And there is, sadly, going to have to be some pain. Otherwise, nobody learns any lessons.

But in the end, most of the big boys will get bailed out. It's you and me who will get screwed.

The guys running the banks are just like the guys running the airlines. They give themselves massive salaries and then do things that are just bad business because they know that their services are necessary and governments will always bail them out. As a matter of fact, they have some politicians in their pockets. It is corruption and greed on a grand scale and it continues because the foxes are guarding the hen house.

I wanna write something but I dunno what to write... I tried to understand stock market but never success...

I say dont do it. Let the stock brokers and hedge fund managers jump from windows.........

Shhhh. . . all of you. I get paid in GBP and all of my monetary obligations are in USD. :-)

From Rude Awakening

It's also not surprising that a number of highly leveraged hedge funds were caught by the Bear Bust. Sizable losses have been reported by Old Hill Partners and Wharton Asset Management. United Capital, with $500 million in assets, has stopped investors from withdrawing capital while Braddock Financial is closing its subprime mortgage-ladened Galena Street Fund and suspending redemptions until it can sell its $300 million holdings. London-based Caliber Global Investment got nailed in American subprime mortgage holdings and is closing after losing 53% of its $2 billion value. And in Boston, Sowood Capital Management announced that it lost over 50% of its $3 billion assets and is closing its two funds.

Troubles in subprime mortgage land has been well known since the beginning of the year. But with the Bear Bust, investors began to worry about the A, AA and AAA tranches. Then came the shocking announcement on July 24 by Countrywide that delinquencies of 30 days or more on its subprime loans leaped to 23.7% at the end of the second quarter from 15.3% a year earlier. A big jump, but no big surprise. But on prime home equity loans, delinquencies leaped to 4.6% from 1.8%. So the subprime slime has oozed up to the high rent district! Propelled by loss provisions and write-downs of securities backed by those prime home equity loans, Countrywide's net income slid 33% from a year earlier and the stock tanked. And note that many of those Countrywide loans were piggybacks, loans on top of first mortgages that often bring total borrowing close to 100% of a house's value.

It's not going to hurt us to much down here Van the stockmarket is volatile at the moment but it is still well up from the past couple of years it has grown approx 20 percent (The Aussie Stockmarket) from 2003 we should be safe!!!