What Is Being
Done About
The Credit Crunch in UK?
The UK is not exempt
from the current credit crunch being felt around the world. Yet the government's
response to the problem is a little different than seen elsewhere. While
much of the world is currently feeling the pains of a worldwide credit crunch,
people in the UK are shouldering their share of the problem. Just like many other
places in the world, the credit crunch in UK has been caused by years of loose
subprime lending that over time turned sour as the economy turned downhill and
turned all of those lending investments into losing deals. The
credit crunch in UK may not be unique as far as what caused the problem or the
length of time it will take to get out from under it, but their response to the
crunch does stand out from strategies being used in the rest of the world. Just
as the American government has poured billions of dollars into their banking system
trying to bring some relief, the credit crunch in UK has been dealt with by pumping
high amounts of cash into their banking system as well. Yet the UK government
took it one step further, with a new rule that has pushed new investors away from
buying into bank shares altogether. In an effort to stop
the credit crunch in UK, the government has ruled that shareholders will not receive
anymore dividends until all of the government aid that has been poured into the
system is paid back. There are many small investors in the UK who don't have money
to lose or time to wait for dividends to start pouring in. These investors are
now scared away from banks shares for the most part. How
a government responds to a credit crunch could very well determine the length
of time it takes to get out of the crunch in the long run. It is yet to be seen
if the tactic of pumping government money into the banking systems will pay off
in the long runs or not, and it is the same with this new ruling by the UK government
Perhaps the pressure from shareholders wanting their fair share of their investments
will keep the banks in line to get back on a profit-making track as soon as possible.
Many people are now pointing to the Japanese credit crunch
of the recent past, which took fourteen years to resolve. The Japanese government
was eventually able to provide enough aid that the banking system survived and
the economy revived, but it took a long time to undo the damage that loose lending
practices created, and it is like to take just as long in the UK. Investors
around the world are now turning away from markets that were seen as stable and
secure just a short time ago. Many of the UK investors are responding to the no
dividends policy by finding other avenues to invest, while large investors may
remain in the bank shares market and ride out the credit crunch. What
further measures will have to be taken to relieve the credit crunch in UK is yet
unknown, as is the number of years that the people will have to suffer from the
financial strains of a global credit crunch. Investors and citizens alike remain
glued to the developing problem on a daily basis, hoping for relief of some sort
to arrive soon.
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