An Australian Perspective of the Credit Crunch

What is the global credit crunch? Simply explained it emerged when brokers and banks were offering mortgages to borrowers who had little or no income.

These mortgages were called sub-prime mortgages. The mortgages were written and structured as "non-recourse loans". If a borrower defaulted on his mortgage, he could simply return the house key to the bank and walk away. These mortgages were "bundled into packages, and re-sold to investors.

When home owners with sub-prime mortgages couldn't pay their mortgages, banks foreclosed and property prices dropped, in some cases by over fifty percent.