Anatomy of crisis
If your palms start to sweat whenever you see the business headlines or flip to a business channel, you might draw solace from the fact you share these symptoms with millions. Investors across the world are in a state of absolute panic. As they dump risky assets like shares and rush to safe havens like gold and government bonds, stock markets and currencies across the world keep falling. The origins of today’s crisis can be traced back to mid-2007 when three things became clear. One, low income or sub-prime US households that had borrowed heavily from banks and finance companies to buy homes were defaulting heavily on their debt obligations. Two, the size of this sub-prime housing loan market was huge at about $1.4 trillion. Three, Wall Street’s financial engineers had packaged these loans into really complicated financial instruments called CDOs (collateralized debt obligations). American and European banks had invested heavily in these products. However, no amount of financial en