The subprime crisis

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Subprime United States

In the United States, subprimes are high risk loans (mortgages, credit cards, etc.) given to people with low credit ratings and based on high interest rates (variable interest rate).
The double combination of the drop in the price of real estate on the American market, which started in 2006, and runaway interest rates, created a credit crunch with most lenders.
House prices plunged well below their value of guarantee and the phenomenon led many American subprime mortgage lenders to bankruptcy.
This crisis, which appeared as of 18th July 2007, caused a generalised loss of confidence in the financial system.
It contaminated the entire credit market. One of the consequences is the increase in interest rates, which can slow the consumption of indebted households and penalise companies looking to invest.
There are also many indirect consequences on the international markets, one of which is the raw materials crisis.

Updated on: 15/01/2008

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