The Subprime Fallout-Local Difficulty Or Global Crisis? The Implications For English Litigators

Introduction

A credit crunch is the term economists use to describe a financial environment where investment capital is in short supply. It is a recessionary period in a debt-based monetary system where growth in debt money has slowed which subsequently leads to a drying-up of liquidity in an economy.¹ A credit crunch is also known as a ‘liquidity crisis’ or a ‘credit squeeze’, where the banks will not or cannot lend and where investors cannot or will not buy debt. When it suddenly becomes very difficult to borrow money, this can have serious implications for an economy, both for private individuals and business. A credit crunch is often caused by poor and reckless lending, which results in losses for lending institutions and investors in that debt.