At the moment we are in the middle of a financial crisis which could lead to recession or, worse still, a depression. This credit-crunch means that it is harder to borrow money from banks or it becomes more expensive to do so. The credit-crisis was caused by banks being involved in risky loans that resulted in bad debts. For example, banks lent customers money for mortgages to buy houses, but many customers were unable to repay their loans. This left the banks seriously out of pocket. Banks also lent money to other banks and big businesses, and now, these banks and businesses have problems with solvency.
In order to help these banks, governments are giving banks financial injections. In the UK, this injection accounts for around a £37billion bail-out. The British government now owns large parts of many banks, which is seen as a return to nationalisation. In a further attempt to help out, banks have cut their interest rates, but inflation continues to rise.
recession (noun) a period when the economy of a country is not successful and conditions for business are bad.
depression (noun) a long period when the economy is in a very bad condition. A worse situation than a recession.
credit-crunch / credit crisis (noun) an economic situation caused by banks having no money because they lent money to individuals or groups who could not pay them back.
risky loans (noun) the loans that banks gave to those who were not likely to be able to pay back the money.
bad debts (noun) banks being unable to get back the money they lent. Similar to risky loans.
mortgages (noun) special loans from banks to buy houses.
out of pocket (idiom) to make an economic loss. To pay out for something and not get anything in return.
solvency (noun) the ability to pay back your loan.
financial injections (noun) a very large amount of money given to help a bank or organisation which is having money troubles.
bail-out (noun) to help a person or organization that is in difficulty, usually by giving or lending them money.
nationalisation (noun) the government takes control of a business or industry.
interest rates (noun) the rate that lenders charge their borrowers to borrow money.
inflation (noun) the rise in price of goods and services.
