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Locked out of money markets

  • 31-07-2011 5:15am
    #1
    Posts: 0


    Hopefully this is in the right category, I've been reading up on the financial crisis lately, trying to get my head around it. I've read the term "locked out" in relation to money markets in a few different documents like Trichet's remarks on the crisis http://www.ecb.int/press/key/date/2008/html/sp081208_2.en.html. Is there a definition of "locked out" or is it just as simple as meaning 'unable to participate'? Also is there a good manual to give me a background to financial terms?
    Thanks


Comments

  • Registered Users, Registered Users 2 Posts: 3,086 ✭✭✭Nijmegen


    There's two 'ideas' of being locked out of financial markets:

    Firstly, as happened to us when the IMF moved in, the interest rate proposed on debt is simply too high to be sustainable, and borrowing at that rate would be economic suicide.

    Every % in interest on every billion you owe is millions you must pay each year to keep up with the interest repayments on your loans.

    Interest rates go higher the bigger the risk you are to default.

    Secondly, there is an actual 'locked out' status when your credit rating is downgraded to junk. Most, if not all, investment bodies follow a ratings agency, and if that agency reduces debt status to junk then most investment bodies have a set rule not to have that in their portfolio.

    Therefore, nobody is willing to lend to you at any interest rate.


  • Posts: 0 [Deleted User]


    Thanks!


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