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The Current Credit Market Turbulence

Introduction

The world is currently experiencing an economic recession which is affecting both small and big economies. Indeed, this is one of the worst economic times experienced by both developing and developed countries. The biggest investment banks are soon to collapse if proper modalities are not put in place to avert the situation. The problem within the world economies commenced with the collapse of sub-prime mortgages and defaults in the quality of production events. In the United States, for example, big companies like AIG and General Motors are struggling from recession as they risk liquidation. The largest US investment bank, Bear Steams is on the verge to collapse without the realization of stakeholders.

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The US Federal Reserve bank has taken major steps to reduce and minimize these credit market anomalies. However, even with the positive strides made, there are still uncertainties and loopholes affecting financial institutions which offer credit markets. The current credit market instability came as a result of easy access to credit finances accompanied by low returns without proper scrutiny by investment banks. Consequently, lobbying escalated between financial institutions and borrowers who failed to pay back (Rodrigo, 2007, Para. 4-9).

Projected Credit Markets

Credit markets are getting tougher each day. This has prompted many to evade taking credits due to the turmoil in the market. For example, in 2007, fuel price was about US$ 5 per gallon when credit markets were on high alert. About some two years down the line, recession invested banks and as a result, the lending of money halted. But it is important to note that, for any business to survive under credit market turmoil, both high and low credit facilities must accompany it. The projected credit markets required participation from all stakeholders, both lenders and borrowers to strike common ground in averting the turbulences in credit markets (Vaske, 2010, Para. 2-6).

In the year 2009, some banks streamlined their borrowing rules and reduced risks through laid down rules. Reports indicate that about 15 percent of investment banks achieved high status in terms of credit market control with none reporting uncontrolled borrowing principles. To restrict lenders from borrowing, it is expected that, corporate sectors and household finances will be adversely affected. Liquidity management is now well managed by both banks and financial institutions minimizing unnecessary finances. This will once again shape the financial and credit market in globally competitive credit markets. Strategic planning modalities put in place by the central bank have yielded fruits in the financial sector. For example, there must be a credit assessment before a firm is issued a certificate to invest in credit markets.

The fluctuations in economic scales of countries estimate a lower personal expenditure as far as consumption is concerned. The United States government has encouraged investment in the private sector based on the gross domestic product of its citizenry. The decisions made so far have seen a halt in business fluctuation cycles thus bringing success in the economic scale. The Federal Reserve Bank has tried to formulate policies that govern the future of credit markets. The problems can only be fixed if there is progressive funding through Federal Funds popularly known as the fiscal stimulus to fill the void in deficit spending packages. The projected credit markets have been reconstituted through what is seen as a recapitalization of the banking industry. The aim is to provide funds that will strengthen the bank’s lending power for global competitiveness (Bergevin, 2008, Para. 13-19).

Conclusion

In conclusion, the enacted monetary policies spearhead a stable credit market for global benefits. Any development in the financial sector will be beneficial for banks so that they can offer credit services and help in the restructuring of the financial sector. Policies like securitization, transparency, liquidity, and responsibility will see a viable credit market and strong financial institutions ready to offer lending services to potential customers.

Reference

Bergevin, P. (2008). The Current Credit Market Turbulence: The Build-up, the Trigger and the Fallout. Publications List. Web. 

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Rodrigo, R. (2007). The Implications of Recent Financial Market Turbulence for the Global Economy. Web.

Vaske, R. (2010). Doing Business in a tight credit market. Web.

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