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Miranda Yeung

It seems like yesterday the Hang Seng Index  reached 30,000 points for the first time and  people rushed to invest in the stock market.
However, a global financial  crisis has made the stock market fall rapidly.
Financial  institutions are in trouble due to problems in the US housing market.
Fewer people are buying and selling homes, property prices have rocketed and homeowners are unable to meet the payments on adjustable rates, or sub-prime, mortgages.
Recently, Lehman Brothers - a US firm with more than 100 years of history - collapsed as a result of the sub-prime mortgage crisis in the US housing market.
The company was brought down in part because it held a number of mortgages that went into default, which happens when people are unable to make payments.
American Insurance Group,  the biggest insurance company in the world,  had  to borrow US$85 billion from the US Federal Reserve  to avoid bankruptcy.
Suddenly banks - no matter how big they are -  are losing consumer confidence.
Last week, the Bank of East Asia had to calm customers after thousands queued outside their branches overnight to withdraw money following rumours  that the bank was about to collapse.
There is no easy answer to the credit crunch - a term that refers to banks  reconsidering how, and to whom, they lend money.
One cause of the credit crunch is the way banks lent money during the last decade, when the US economy was booming. Money was loaned easily, even to those who were bad credit risks.
Mortgage lenders granted, or persuaded, property buyers to take on larger mortgages for bigger homes, which were unaffordable  in reality.
However, the economic bubble burst last year when bank interest rates in the US rose and property prices fell.
The sub-prime market fell apart as many mortgage lenders could no longer afford to pay their debts.
The seemingly domestic financial crisis has spread quickly and is now making an impact globally.
Stock markets in every part  of the world have fallen dramatically.
Earlier this week, the Dow Jones Industrial Average made a record-breaking loss, dropping the most points ever in one day.
Banks everywhere are suffering huge losses. Having recorded bad debt in their balance sheets, they are now unwilling,  or simply  have no extra money, to lend to other banks.
Most have increased interest rates and plan to charge higher fees for services, making it more difficult for companies and customers to borrow money.
People are feeling the pinch. In order to cover their losses, banks are trying to raise money in other ways, which means shifting their losses onto customers.
Big banks like HSBC have announced layoffs of as many as 1,100 staff globally, and  reductions in recruitment for the coming year. Last week, HSBC staff protested against layoffs outside the bank's headquarters in Central.
Homeowners with variable mortgage rates have suffered the most as an increase in interest rates means  their monthly payments are now much higher than previously.
As a result, thousands of homeowners in the UK and the  US have been made homeless by the crisis.
Luckily, the housing market in Hong Kong has not yet been affected in the same dramatic way.
dicsuss
1) What were the main causes of the global credit crunch?
2) Do you have suggestions for saving money in difficult economic times?



Credit crunch