The inception of the credit crunch as documented was in 2007 as a result of bad news was reported from BNP Paribas,the French organisation. Considering the background of this big event, it is fair to say that, the situation was avoidable. Although, the US government reduced it's interest rates in order to improve it's economy for far too long as expressed by Jeffrey Sachs (2008). The government had genuine reason for the interest rate reduction but the investment effect of not knowing when to sell shares applies here as the government benefited from the income generated as result of its low interest rates. Banks had too much money thereby lending to uncertified lenders, creating a domino effect which infiltrated the banking sector and the economies involved.
The loss of trust that resulted from the securitization process will make it almost impossible for confidence to be regained in the system. This explains the reason behind the slow recovery, house prices continue to drop and lenders get even more strict therefore leaving the public afraid to spend. The fear of spending is justifiable since debt is not exactly readily available as it used to be. As time goes by, analyst believe, trust will be regained in the system but this wont be any time soon as this credit crunch had a huge adverse effect on interest rates. The big question still remains though,which is could the credit crunch have been avoided?
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