Financial markets across the world are experiencing jitters. India is also not insulated. Sensex plunged to 14,xxx shattering the dreams of touching 16000. Reason..? Subprime Mortgage meltdown.
(Subprime Mortgage : Loans given to consumers who have poor credit history. The loans have high interest rate and lot of strings attached to it).
Subprime defaulting will result in foreclosures and a massive defaulting results in foreclosures which has affected already poor US home realty industry. Even selling the mortgages is not easy in this scenario. As a result of subprime foreclosures which started in US in late 2006 and continuing in 2007, many subprime lenders have filed chapter 11 bankruptcy. Two major American sub prime lenders have filed bankruptcy which has resulted in global fear and apparently crisis. Markets responded across the world in fear of credit crisis as banks are expected to control credit lending. Result..? No easy liquidity. To allay the fears both US Federal Reserve and European Central Bank have pumped in billions of dollars into their respective banking system.
The picture is not going to get rosy in the coming weeks. Now that is the bad news.