October 22, 2008
The Financial Turmoil – (The Big Picture)
By Wade Rousse
What’s happening in the economy? Or, how did we get into this situation? Or, can you just explain the Big Picture? If you’re looking for answers to these types of questions, Chairman Bernanke, in his recent remarks to Congress, does a fantastic job of providing them.
Check out the first paragraph of Chairman Bernanke’s remarks. He’s very clear in stating that world financial markets have been under stress. This financial turmoil follows a period where risk was under-priced. That resulted in easy credit and the use of complex financial instruments. As a result, for more than a decade, housing prices increased at an unsustainable rate. Then, of course, they experienced this dramatic decline.
Poor lending practices were involved in the financing of some of these homes. Because of this, many institutions are incurring large losses on mortgages and mortgage-related investments. The boom is currently unwinding, and it’s causing broad-based tightening in credit markets. These difficult credit conditions are now beginning to impact economic growth.
I strongly encourage those of you who would like more details to read the remainder of Chairman Bernanke’s remarks.
Posted by Wade at October 22, 2008 10:08 PM
TrackBack URL for this entry:
Post a comment
All comments and links posted to FRBC blogs are reviewed. The Federal Reserve reserves the right to protect against spam, off-topic and profane comments and links; any such comments or links will be deleted and the domain address of the poster blocked.