Economic Meltdown?
Economic Meltdown? I hope not!!!
So, the big question is, are we witnessing an economic meltdown in America and perhaps the World. The answer is, no one really knows at this point. The stock markets around the world have been jittery, registering big losses on some days, but also seeming to gain a footing on other days.
One of the interesting things has been the discussion about “sub-prime mortgages.” We’ve been hearing about these mortgages for several months now, almost always with reassurances from the Federal Reserve and economists that the problems with these mortgages were not
“spilling over” into other areas of the economy. Something, I take it, that was not really true. I’m not an economist, but from my limited understanding of the situation, these mortgages were given to many folks who would not normally qualify for a mortgage, and often times with special incentives, like no down payments, or delayed payments. In recent months, a fair number of people with these mortgages have defaulted, causing mortgage lenders major headaches; that is, losses. From what I gather, some mortgage companies have been staggered by the losses. When these losses really started showing up in financial statements, lenders began tightening their requirements. Further, investors who normally buy certain bonds that finance companies and, if I understand it correctly, mortgages, began to stay away from these “investments” in droves. Suddenly we’ve got this “credit crunch.” So, the experts were wrong, as far as we know at this time. The problem DID spill over into other areas of the economy.
As I’m sure you are already aware, the amount of new homes being built has been tumbling for months now. The sale of new homes is also way down; so much so, that I heard on the radio one morning that some home builders are renting out newly built homes to try to have a cash flow. The sale of existing homes is also down considerably.
Okay, so what’s been going on? Well, several years ago, the Federal Reserve began to lower interest rates. Following the 9/11 attacks, they lowered the rates on a regular basis in an attempt to get the economy moving again. Over time, it worked! With the lowest interest rates in decades, people began buying homes and businesses expanded. Further, many folks refinanced their homes to get the lower rate, and many took out cash to do repairs, upgrades, or buy flat screen TVs. The President encouraged Americans to buy homes as part of his pitch for an “ownership society.” If I remember correctly, home ownership reached an all time high, in terms of the percentage of Americans who owned their own home. Of course, the downside of part of this was that lenders got sloppy, and in the competitive environment to sell more homes, along came these sub-prime mortgages in substantial numbers.
I’m sure there are many, many reasons why people have defaulted on these loans. Certainly job losses and wage and benefit reductions, especially in manufacturing jobs, had an effect. You’re making fifty grand in a factory, your job goes overseas, and the next thing you know, you’re making twenty grand. Something has to give. And don’t forget, government figures show that something like two to three million Americans lost health insurance in the last few years. You get sick or injured, and goodbye home. And just the cost of living has been rising and wages have not kept up. Now, I know the regular readers here think I’m pro worker. And I AM! I make no apologies for that, but I also have to admit that certainly, not everyone was responsible enough for home ownership. From what I’ve heard on television, predictions are for seven million Americans to lose their homes over the next couple of years, and that’s on top of those who have already experienced foreclosure. As one television analyst noted, it might be good advice to invest in companies that make tents.
When you listen to the Wall Streeters, it all the fault of the poorer or middle income folks who bought homes that they couldn’t afford. There’s probably some truth to that, but some one had to give those loans to them, and that’s that famous “free market” they tout so much.
Now the coals are burning under THEIR feet, and lo and behold, what do I hear? Calls for regulation! Calls for the Fed (that is, the Federal Reserve) to intervene. Folks, that’s government!!! I thought the free market was just so incredible and fool proof! When average folks ask for government help, we’re called ‘freeloaders.” I wonder what they call it now that they want help? I’ll bet it’s not “freeloading.” Sometimes we all have to bite our lips, swallow hard, and go along with things we don't necessarily agree with. After 9/11, many senators and congress people of both parties didn't like it, but they voted to help out the airlines. Now is also one of times. For the good of the country, let's hope that the Federal Reserve can help alleviate the problems.
The point is, these money grubbers have been so disconnected from everyday people. It is just money, money, money!!! They NEVER stop! They never have enough! Tremendous income gains for the wealthiest Americans for years now. Stagnant wages for many of America’s workers. Some of us may lose our homes, too, but at least we get to see some of these birds squirm and twitch and find out how it feels to be a “freeloader.”
So, the big question is, are we witnessing an economic meltdown in America and perhaps the World. The answer is, no one really knows at this point. The stock markets around the world have been jittery, registering big losses on some days, but also seeming to gain a footing on other days.
One of the interesting things has been the discussion about “sub-prime mortgages.” We’ve been hearing about these mortgages for several months now, almost always with reassurances from the Federal Reserve and economists that the problems with these mortgages were not
“spilling over” into other areas of the economy. Something, I take it, that was not really true. I’m not an economist, but from my limited understanding of the situation, these mortgages were given to many folks who would not normally qualify for a mortgage, and often times with special incentives, like no down payments, or delayed payments. In recent months, a fair number of people with these mortgages have defaulted, causing mortgage lenders major headaches; that is, losses. From what I gather, some mortgage companies have been staggered by the losses. When these losses really started showing up in financial statements, lenders began tightening their requirements. Further, investors who normally buy certain bonds that finance companies and, if I understand it correctly, mortgages, began to stay away from these “investments” in droves. Suddenly we’ve got this “credit crunch.” So, the experts were wrong, as far as we know at this time. The problem DID spill over into other areas of the economy.
As I’m sure you are already aware, the amount of new homes being built has been tumbling for months now. The sale of new homes is also way down; so much so, that I heard on the radio one morning that some home builders are renting out newly built homes to try to have a cash flow. The sale of existing homes is also down considerably.
Okay, so what’s been going on? Well, several years ago, the Federal Reserve began to lower interest rates. Following the 9/11 attacks, they lowered the rates on a regular basis in an attempt to get the economy moving again. Over time, it worked! With the lowest interest rates in decades, people began buying homes and businesses expanded. Further, many folks refinanced their homes to get the lower rate, and many took out cash to do repairs, upgrades, or buy flat screen TVs. The President encouraged Americans to buy homes as part of his pitch for an “ownership society.” If I remember correctly, home ownership reached an all time high, in terms of the percentage of Americans who owned their own home. Of course, the downside of part of this was that lenders got sloppy, and in the competitive environment to sell more homes, along came these sub-prime mortgages in substantial numbers.
I’m sure there are many, many reasons why people have defaulted on these loans. Certainly job losses and wage and benefit reductions, especially in manufacturing jobs, had an effect. You’re making fifty grand in a factory, your job goes overseas, and the next thing you know, you’re making twenty grand. Something has to give. And don’t forget, government figures show that something like two to three million Americans lost health insurance in the last few years. You get sick or injured, and goodbye home. And just the cost of living has been rising and wages have not kept up. Now, I know the regular readers here think I’m pro worker. And I AM! I make no apologies for that, but I also have to admit that certainly, not everyone was responsible enough for home ownership. From what I’ve heard on television, predictions are for seven million Americans to lose their homes over the next couple of years, and that’s on top of those who have already experienced foreclosure. As one television analyst noted, it might be good advice to invest in companies that make tents.
When you listen to the Wall Streeters, it all the fault of the poorer or middle income folks who bought homes that they couldn’t afford. There’s probably some truth to that, but some one had to give those loans to them, and that’s that famous “free market” they tout so much.
Now the coals are burning under THEIR feet, and lo and behold, what do I hear? Calls for regulation! Calls for the Fed (that is, the Federal Reserve) to intervene. Folks, that’s government!!! I thought the free market was just so incredible and fool proof! When average folks ask for government help, we’re called ‘freeloaders.” I wonder what they call it now that they want help? I’ll bet it’s not “freeloading.” Sometimes we all have to bite our lips, swallow hard, and go along with things we don't necessarily agree with. After 9/11, many senators and congress people of both parties didn't like it, but they voted to help out the airlines. Now is also one of times. For the good of the country, let's hope that the Federal Reserve can help alleviate the problems.
The point is, these money grubbers have been so disconnected from everyday people. It is just money, money, money!!! They NEVER stop! They never have enough! Tremendous income gains for the wealthiest Americans for years now. Stagnant wages for many of America’s workers. Some of us may lose our homes, too, but at least we get to see some of these birds squirm and twitch and find out how it feels to be a “freeloader.”
posted by Randy at 3:13 PM
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