with change comes opportunity, page-7

NS,

Your question about the big squeeze prompts this reply but it may present more questions rather than an answer.

If we go back to the beginnings of the sub prime crisis in 2006, according to press reports at that time, it was a question raised by french banks with USA banks regarding the positive identification of security for sub prime loans acquired by the french from the americans which first started the alarm bells ringing. The fact was that there was no identifiable security for the loans. On hearing this information the french then refused to extend credit to those banks involved until adequate security could be identified for the sub prime loans (according to my memory of events). This precipitated an international credit crisis since american banks needed to be able to pass on their mortgage exposure (effectively to gain foreign sourced income) in order to maintain their lending policies internally in the USA.

An international credit squeeze followed on from the USA crisis in which foreclosures on USA sub prime loans made on questionable security was foreshadowed at that time. This was politically unacceptable in the USA and there is still talk in the press of US government assistance to home owners in peril of foreclosure of their mortgages, and this is happening while interest rates in the US are at a very low level but unemployment looks to be increasing. To my mind this hints that there was always a lot of doubt about the capabality of the borrowers to repay the sub prime loans and this undoubtedly underlines the french concerns about the pea under the thimble trick the american banks worked on them. I have not heard yet of this problem having been resolved between the banks.

I think that the inter related banking systems of the world are now bouncing the problem of security back and forth between them and hoping that it will eventually hit some one and stay there. Eventually someone must pay for unrecoverable debts, whether the someone concerned is a guarantor or an investor in a bank with bad debts written off. The credit squeeze will continue until the international banking system sorts out its problems. IMO the answer to the question about who is responsible for the problem is - the banks themselves.