Contagion

When used in financial markets, contagion is a term associated with the kind of market turmoil seen in 2007 as well as previous crises such as those of 2001 and 1998...

When used in financial markets, contagion is a term associated with the kind of market turmoil seen in 2007 as well as previous crises such as those of 2001 and 1998. The problem stems from the fact that the global financial markets, and therefore the banks and other institutions that operate in them, are all interlinked- they lend to and trade with each other. So, events which are initially localised and isolated, such as high risk mortgagees defaulting in the subprime US sector, can quickly ripple out and trigger defaults in other institutions all around the world. A good example is Northern Rock's near-collapsewhich resulted from the effective closure of the interbank lending market after rival banks stopped trusting each other to correctly price potentially worthless US-mortgage backed assets.

Most Popular

Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How you can profit from the power of the grey pound
Share tips

How you can profit from the power of the grey pound

Higher life expectancy and surging asset prices have proved a boon for the baby-boomer generation, which has accumulated vast wealth. Younger generati…
10 Sep 2021