December 31st, 2008 - What happened
Hello and welcome to first official post from TechCurry.net!
The industry is currently under deep pressure (s**t). In the beginning of last year (2007) we got the news about the Sub-Prime crisis. Ok.. for whom “sub-prime” means another theorem here is the small explanation. In United States every individual has a unique identification number similar to our Income Tax PAN (Permanent Account Number). It is called Social Security Number (SSN). If you have a Bank Account, Credit Card, Your Salary, etc everything is tied to an SSN. With this, we have the Credit Bureaus who constantly get all your credit information (any loan, credit card payments, apartment rents, Mobile Bills) and provide you with a rating. This will tell whether you pay your credit bills promptly or defaulting them.
Sub-prime is a class where people who have less credit ratings (or had defaulted before), but Banks provide them the credit facility (loan) at a higher rate of interest.
When the sub-prime crisis hit, lot of loan defaulters means lot of non performing assets for the Banks. This affected the majority of the Housing / Real estate industry. The Banks which had given loans to people for buying their property now have people defaulting on the re-payment. You can argue that the Bank can takeover those properties back and auction/sell it in the market. But if the Banks have lot of these properties to sell, there will less buyers in the market. If there are less buyers in the market, the return on the properties will automatically go down. This cyclic effect made the Bank less with money and more with properties. This led to the Credit or liquidity crunch for Bank.
Banks are the backbone of whole world’s ecosystem. When they face the liquidity or hot cash crunch, every other industry are bound to be affected.