Thursday, August 09, 2007

Subprime reckoning

I am not a financier but I do work in the City and next door to Bloomberg in London.

A few weeks ago I had never heard of the "subprime" mortgage market. This, as far as I understand it, is low grade lending- to poor people i.e. people less likely to be able to pay back. Eventually a peak was reached, too many people had overstretched themselves and the US property market started to fall. Then last week a major US subprime lender got into trouble.

Now it seems to be spreading accross the pond. The European Central Bank today pumped £63 billion pounds into the lending market in a bid to make more money available to squeezed lenders.

The stock market has taken a battering as a result.

These are uncertain times in the financial world and the financial health of all of us depends, to some extent, on the outcome.

Look out for subprime ! It is a reminder that ultimately lending and property prices do have to bear some resemblence to the income of the people borrowing and living in the properties.

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