What Is a Credit Crisis?

Credit crisis refers to the phenomenon of excessive credit expansion, causing inflation and economic turmoil, and then affecting the credibility of the credit system, leading to the collapse of various links. It has caused the crisis of the entire financial system due to the excessive increase of credit and poor credit management of the banks themselves, and the difficulty of payment of individual banks, and the credit crisis caused by the economic crisis. When the economic crisis occurred, a large number of commodities were backlogged, and a large number of enterprises were unable to repay their debts due to ineffective capital turnover, resulting in credit collapse.

credit crisis

Excessive credit expansion. Capitalism

Manifestations of the credit crisis When a credit crisis occurs in Western countries, various aspects of the credit system behave differently.

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Periodic

Such crises are not cyclical

Post-war

An antidote to the credit crisis

Relationship, a term that once puzzled many foreigners, is now gradually getting more and more

credit crisis

Many European and American investors have mastered it and used it to the fullest. David Hopkins, a partner of a well-known New York investment company, is not as tired as other investors on the boards of investee companies, but sits leisurely in the cafe waiting for him. An old friend, Joy Miller.

They replaced this serious work presentation in the office with this casual and easy way. Initially, Hopkins and Miller were just the relationship between the investor and the owner of the invested company, but as the business relationship increased, they became good friends, that is, the trust between this friend made them work It was more frank and smooth.

Subprime crisis or credit crisis

It has been a year since the US subprime mortgage crisis broke out in August 2007. The negative impact of the US subprime mortgage crisis on the global economy is still vivid, and the problems exposed cannot be ignored. Various forms of financial transactions continue to focus risk on large international banks, increasing the risk of the global financial system and causing its instability. The new accounting standards and risk management models are difficult to apply to the management of systemic risks in the financial system. A series of issues have brought unprecedented severe tests to the future supervision of the financial industry. Not only the supervision of the banking system needs to be strengthened, but credit rating agencies, which play an important role and influence in the financial market, also lack awareness and supervision of risks.

In addition, with the rapid development of off-balance sheet business and asset securitization, banks have successfully avoided the constraints of traditional supervision through asset securitization, but this has also brought new risks to them. The complex structure of the asset portfolio may lead to the risk of cross-default and affect both the investment institution and the investee company. The most obvious result of the subprime crisis is that debt is treated as a commodity, and it has become the first factor for investors to consider. Ian Wallis, a partner at MMLCapitalPartners, said: "Twelve months ago, when we entered into a transaction, we didn't have to worry about where the debt element came from, but in recent months we have to do The first thing to consider is debt before the transaction. As there is no clear debt situation, we have to increase the cost of financial and legal due diligence. "

The performance of the previous subprime mortgage crisis was a liquidity crisis. This crisis can be alleviated to a certain extent through the injection of funds. It is believed that after a series of continuous capital injection liquidity measures by the Federal Reserve and European Banks, the subprime mortgage crisis was achieved. At a certain degree of control, some economists suggested that the credit crisis had arrived. Subprime mortgages have experienced serious defaults and risks, which may lead to a credit crisis in asset-backed securities related to subprime mortgages, which may eventually lead to a credit crisis in the banking system and investors.

The subprime mortgage crisis is caused by some risks and regulatory issues in today's financial markets, and the possibility of reducing risk and improving supervision by some means in the short term is almost zero. So how should investors respond to the crisis of trust?

Relationships ease credit crisis

As we all know, today's financial market environment has undergone tremendous changes, and the investment industry has also changed. Compared with previous years, the market's supply capacity and actual circulation have greatly improved. Confidence comes from the trust of experience and alliance interests. In today's constantly moving economic aircraft carrier, the most important thing is to know who your friends are. Perhaps one of the final results for risk revaluation is discovering how important relationships are in the investment industry.

Sometimes it seems that the credit committee moves faster than the project team. There are countless examples in reality that prove that the team that works on the project believes that the conditions they can accept and the conditions that they can actually obtain through the loan are very different. This is why it is very important to develop a strong network of relationships: most banks will only give final approval a few days before the transaction is completed, and this relationship will provide you with a good opportunity to learn Bank approval process has been carried out

credit crisis

Which stage, and at the same time understand what its main business conditions are. Obviously, this is not a unilateral transaction. Due to the credit crisis, banks have also become increasingly selective in deciding which customers to work with. Banks are more inclined to work with partners they have worked with to reduce risk. At the very least, they also need to understand the customer s past performance in order to assess how the other party will operate after the transaction is completed. When an investment company's operating performance is poor compared to its peers, banks will consider the quality of the relationship between it and this investment company, and it is vital to understand and believe how the other party will operate in the future. The relationship with the management team of consultants and investee companies has also become increasingly important, which also reflects the characteristics of this new market today. But prices and conditions are still the most important factors in the entire investment process. In the current financial environment, the heaviest negotiations still change with the transaction. For consultants, one of the ways to protect their interests is to maintain good relationships with private equity companies, especially with each member involved in the transaction. For private equity companies, a good market reputation is very important.

It is worth noting that the relationship with the management team needs to be carefully cultivated, especially with the business owner. Of course, in-depth due diligence on the target company is very important, but the degree of investigation can be appropriately relaxed, because the trust between the investor and the management team is necessary, it can ensure that the investor provides the company with the appropriate Financial support, while creating value after the transaction is completed.

Therefore, especially in the current market environment, the cause of transaction execution failure is not simply the correctness of the data, but the intangible factors such as relationship, trust and experience. Cultivating trust and predicting conduct is not a precise science. It is a very precious ability to win the trust of each other. Only market players who can continuously win credibility through investment and operations are the ultimate winners of this challenging era.