Panic selling (fire sales)

In the financial market, a sudden oversupply – in the narrower sense of securities, – in the broader sense of assets in general, because sellers need to obtain liquidity quickly. – The causes of the selling pressure itself and the resulting price decline can be of various kinds. For example, starting in the summer of 2007, a large number of loosely granted mortgage loans (covenant-light credits) to homeowners with low credit ratings (sub-prime addresses) became non-performing in the USA. Because these loans were securitized in the portfolios of many institutions around the world, banks sold these securitized securities. Although they suffered losses as a result, they at least freed up equity that was in extremely short supply. – According to financial history, panic selling also occurs in the wake of the bursting of any bubble. Indeed, banks are now pushing to close out the debts created from credit-financed exposures. Capital management companies in particular, but also a great many small investors worldwide, are thus being forced to dispose of assets in a hurry. This triggers strong selling pressure and falling prices across several market segments. – See selling panic, equity bubble, contagion effects, bear market, bubble, speculative, crash, deflation, bad, domino effect, dotcom bubble, first rate default clause, euphoria phase, financial market-
Stress, headline hysteria, jingle mail, yoyo stock, credit, non-recourse, credit card fiasco, crisis insurance securities, tradable, price plunge, liquidity crisis plan, mark-to-
Model approach, Murphy’s law, ninja loans, outside shareholder, overtrading, panic, PayGreen initiative, procyclicality, rush to exit, shock, external, shocks, structural, sell out, stress test, subprime crisis, scenarios, exceptional, terror shocks, overconsumption, confidence hypertrophy, volatility, lemon trading. – On the subprime crisis in the summer of 2007, see the ECB’s Monthly Bulletin of September 2007, pp. 33 et seq. (detailed account also of the measures taken by the ECB), ECB Monthly Bulletin of November 2007, pp. 18 et seq. (impact of the subprime crisis on the individual sectors of the financial market).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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