More side effects from subprime mortgages

One of main effects of “subprime crisis” is the credit squeeze. In other words, banks lend money with more difficulties. This affects also financial leverage for companies (since they can borrow less money): one of the effects we will probably have the wreckage of many company merge and acquisition.

I must say that, at least from some point of view, I’m not sorry for this, since in the past some acquisition were in my opinion nearly ridiculous, with the acquired company that in the end paid for being acquired. Things worked like this: company “A” borrowed from a bank money to buy company “B”; when “A” haves the majority of “B” shares, “B” get merged with “A”: in the merging, all debts go to the new company, and between these debts there is also the money borrowed for acquisition, that therefore “B” has to pay.

If a greater attention in authorization of credit can be a good thing, in the short term it will probably have negative effects. Some expert pointed out that there are some shaky hedge funds (at least for a loss of confidence), but central bank have already undertaken some protective actions, so if there is less they can do if the situation worsen. In other words, we still are in a transitory market condition.

Italian translation of this post: Mutui subprime: ulteriori effetti collaterali

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