What IS the credit crunch?

As a panelist on Have I Got News For You, Peter Serafinowicz once asked: “What is a bank?” I’m having a similar problem with the credit crunch. Namely: What is it?

“Credit crunch” is a pleasing, alliterative phrase, which probably explains why it has been used more than 1,600 times in UK publications in the last month. (Today, the Telgraph carried ten articles containing the phrase, the T***s had six and the Daily Mail had five.) 

As a business journalist, I’m probably supposed to know. And I do, kind of. But a solid, copper-bottomed definition is difficult to come by and the the media’s use of the phrase is becoming woollier than a sheep in a bobble hat.

So is it:

(a) A specific, isolated economic phenomenon that started and finished in August when the extent of US sub-prime mortgage lending became known. (This seems to be implied when the media, such as Channel Four News last night, use the expression “after-effects of the credit crunch” to describe what’s happening now. Others say “this summer’s credit crunch”, which suggests the crunch is over but the effects of it continue.)

(b) A broader phenomenon initially caused by the sub-prime crisis but which is still ongoing, looks set to continue and is defined by economic “turmoil”. (This formulation is used in this piece in the Guardian the other day, which says we are now “three months from the start of the global credit crunch”. It implies that we are still “in” the credit crunch period and what some call “after-effects” are actually part of the credit crunch itself.)

(c) A broader phenomenon generally describing a sluggish economic climate with a lack of liquidity in financial markets and/or an economy struggling with high levels of individual debt. (This is the gist of the Wikipedia definition, which also mentions a “recessionary period”, while this BBC piece dating from 2005 refers to the “credit crunch of the early 1990s”.)

(d) A new type of great-tasting organic breakfast cereal available only on high interest rate storecards and sold exclusively to people rated as “extremely dodgy” by Experian?

So what, exactly, is the credit crunch? We may never know.

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