The American crisis of subprime mortgage loans is likely to continue shaking global markets, but its consequences could be mitigated as the future risk is not concentrated but distributed among investors worldwide, analysts assess.
The European Central Bank (ECB) injected a total of 155.85 billion euros into the eurozone banking system last Thursday and Friday, as part of central banks’ efforts worldwide to eliminate the global credit crisis related to the American subprime mortgage market. The outbreak of the crisis would make obtaining loans and cash significantly more difficult and expensive for companies and citizens. Analysts assess that the threat of rapid instability spreading in the markets is very high. “The thing is that no one has any idea of the exact amount of subprime mortgage loans in the hands of foreigners,” says Gilles Moec, a senior analyst at Bank of America.
“This is the most important question, and this is precisely what is bad for the markets, as uncertainty is something that markets hate the most,” he adds. However, he points to one paradox – namely, although market sentiment is negative, as he emphasizes, the risk seems equally widespread around the world – “This, in turn, is good for the markets,” he says.
Subprime mortgage loans are offered at high interest rates to Americans with poor credit histories who would otherwise be unable to secure loans. Commerzbank analyst Andreas Huerkamp predicts an imminent end to the crisis. “It is easy to draw a parallel with the crisis that occurred in the mid-90s, so anyone buying stocks now must be a really brave investor,” he assesses. “However, history shows that in six months everything will be forgotten and the market will recover,” he adds.
