The Current Financial Crisis

The UK is currently gripped in a financial crisis which started in 2007. This was sparked off by loss of confidence in the US mortgage market. It affected the UK because some banks had taken on a share of these mortgages containing what is known as toxic assets. These assets are mortgages in excess of the value of the property and where the borrower’s job is not secure. Although the cause of the financial crisis in the UK is often attributed to the American mortgage market the financial system in the UK was vulnerable because banks had underestimated the risks involved in lending. One of the first victims of this error was a medium sized bank called Northern Rock which had to turn to the government for a loan to avert its collapse. Shortly after this Northern Rock was taken into public ownership. This was an early indication of what might befall other banks. It led to panic among investors particularly those holding shares in the banking sector. It was this which precipitated the thirty per cent fall in share values and the onset of a recession with closures of businesses and shops and with mounting unemployment.