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problems in raising funds in the money markets

As the credit markets froze Northern Rock requested the Bank of England, as lender of last resort in the UK, for a liquidity support facility due to problems in raising funds in the money markets. This created a run on the bank as depositors lost all confidence in the bank leading to queues developing across the nation as depositors withdrew their cash in panic. The British government took the controversial decision to nationalise Northern Rock as its collapse would have inevitably spread to other banks as panic stricken depositors attempted to withdraw their savings ‐ the whole banking sector would have collapsed. A similar scenario occurred in March 2008 with Bear Stearns one of the world’s largest investment banks as it was forced to write‐off three of its investment funds in the sub‐prime market. Bear Stearns's problems escalated when rumors spread about its liquidity crisis which in turn eroded investor confidence in the firm. With the housing sector the driving engine for the US economy for the last decade; its collapse will have severe repercussions across the global economy as much of the world’s banks placed their money through complex securitisation in the sub‐prime market.

With the US economy considered already in recession this will have world wide affects as the US economy drives the world economy due its huge consumption. Oil: The Crude Facts The US administration threw billions of dollars at its banking industry who suffered huge losses due to the housing market crash. As the credit crunch has matured most banks to shore up their losses moved into commodities. The price of oil crossed the $100 a barrel Mark in January 2008 – the highest since oil was first discovered over 100 years ago. The importance the black stuff plays in the modern economy is so crucial that slight changes in prices can affect economies. Today oil is used for numerous everyday products across the world, most commonly for powering combustion engines such as fuel oil, diesel oil and petrol. Oil is also used as fuel for heating and lighting (e.g. kerosene lamp).

The petrochemicals industry produces many by‐products such as plastics and lubricants. It also manufacturers solvents (alcohols) through oil, without which there would be no chemicals industry. The free flowing hydrocarbons allow many farming techniques and fertilizers. Hence small shifts in the price of oil have far reaching consequences. The fact oil prices shot through the roof at the same time the credit crunch matured has been publicly kept separate otherwise this would mean the housing bubble has been replaced by the commodities bubble. Oil Past and Present It was British naval power that brought Oil to the international scene. In 1882, Oil had little commercial interest. The development of the internal combustion engine had not yet revolutionised world industry. With Germany on the verge of shifting the global balance of power by developing its own oil propelled ship Britain began converting its naval fleet from bulky coal‐fired propulsion to the new oil fuel. WW1 brought to the international scene the importance of oil; it came to be seen globally as the key to military success. In an age of air warfare, mobile tank warfare, and naval warfare bulky coal‐fired propulsion gave way to oil.

Oil required only 30 minutes for ships to reach top speed compared to 4‐9 hours when coal was used, battleships powered by coal emitted smoke which could be visible 10 kilometres away whilst oil had no tell‐tale signs. The strategic advantage it gave was insurmountable and the British empires control of oil supplies become even more important given the fact that Great Britain had no oil supplies at the time. It was the capturing of the rich oil fields of Baku on the Caspian Sea denying vital supplies to Germany that resulted in the end of WW1 and German surrender. William Engdahl geopolitical expert outlined the importance of oil ‘rarely discussed, however is the fact that the strategic geopolitical objectives of Britain well before 1914 included not merely the crushing defeat of Germany, but, through the conquest of war, the securing of unchallenged British control over the precious resource which by 1919, had proved itself as a strategic raw material of future economic development – petroleum. This was part of the ‘great game’ – the creation of a new global empire, whose hegemony would be unchallenged for the rest of the century, a British – led new world order.’ Britain and France concluded a secret oil bargain (Sykes–Picot agreement) agreeing in effect to monopolise the whole future output of Middle Eastern oil between them. Oil Markets Crude oil, also known as petroleum, is the world's most actively traded commodity. The largest markets are in London, New York and Singapore but crude oil and refined products ‐ such as gasoline (petrol) and heating oil ‐ are bought and sold all over the world.
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