NEW VIRUS FOUND - CREDIT CRISIS ETIOLOGY

Virus Name: SubPrime Mortgage (SPM)

Mode of transmission: predominantly through financial systems namely it is transmitted from bank to another bank. 

Vector: Housing Boom + Consumer Spending

Pathogenesis:-

1) Booming of the housing REIT

2) Lower interest rate

3) Higher consumer expenditure

4) Subprime lending 

5) Banks sell credit risks to investors through securitization process. Investors called it Mortgage Backed Securities (MBS) and Collateralized Debt Obligations (CDO)

6) Risks involved include credit risk, asset price risk, liquidity risk & counterparty risk. 

Clinical pictures: 

1) sub acute presentation

2) when subprime occurs, 

3) lack of liquidity in the market, 

4) money locked-in papers / bad debts

5) unable to liquidate asset 

6) cascading series of consequential credit crunch impacts

Investigation:

1) reassess your own credit status

2) get rid of bad debt

3) increase in liquidity (% investment lock in = 100 minus age, the rest keep in liquidity)

4) opportunities in crisis (buy discounted stocks)

Treatment/ Prevention: 

1) personal financial planning crucial step for prevention

2) understanding bad debt vs good debt

3) strong financial sheet

4) never greed is a good way to prevent

References:

1) http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

2)

http://www.nypost.com/seven/10132008/postopinion/opedcolumnists/spreading_the_virus_133375.htm

3) http://bayareahousingreview.com/2007/08/08/the-subprime-mortgage-virus-has-spread/

4) http://www.tigersharktrading.com/articles/9361/1/The-Subprime-Virus/Page1.html

Notez:-

1) When bad debt goes systemic, it affects non financial sector. THENCE the BIG R (Recession) crawls or jumped in

2) When US having coughs, the whole world gets the flu

3) Few issues here includes: saving our faces vs letting the nature take its course and learn from mistake vs do it right the first time

4) Can we contain this contagious virus?

5) Is there exact treatment for this virus? ie injection of USD700bil bail out will actually works?

6) Can we actually dissociate our economy from the world biggest consumer? 

7) Disclaimer: the above pathogenesis may be totally wrong keeping in view i am no expert in finance or economy. But these are the info i got it from the references.