Wednesday, August 22, 2007
An Un Natural Disaster
As I am not an expert in finance and economics, last weeks stock market crash, burp or what ever you want to call it, was just another part of the rollercoaster ride of that is free enterprise to me. Then I began to read about how this particular event was caused and how it is causing disruption and catastrophy in the lives of over 3,000,ooo Americans.
I learned about how the unregulated practice of sub prime lending put these people into massive debt. Millions of Americans were sold on the idea of financing their homes or refinancing their homes with loan deals that were too good to be real. You've heard the ads, little or no 100% financing! No money down! Low, low credit rates for the first 18 months! You could pretend your house was an giant ATM machine and refinamce and get a huge loan.
Of course these products should never have been offered, but the companies and banks proliferated and targeted the lower middle class who saw this as instant credit.
The other side of this golden egg was the black hole of unregulated interest rates charged after the initial period. Most people aren't able to get their credit in order to deal with this reality.
These loans were designed to appeal to people with bad credit. When, as it inevitably would happen, there were defaults, a lot of the agencies began to fail. The repossessions by the banks began, property values began to drop. With the high interest rates and dropping property values, most people owed more than they could ever sell their homes for.
Economists predict that the market will bottom out somewhere in 2009-10 as most of these loans will actually become due next year. This will cause a recession in the stock market somewhere in this time frame and affect markets all over the world.
The most tragic side of this story is a humanitarian disaster that will hit the social fabric of America like another man made Katrina, except the loss of homes, disrupted and destroyed lives are more likely to be blamed by those unaffected as the results of irresponsible choices. There is no inept FEMA ready to provide trailers. This is going to place a strain on the already gutted social services of America.
The unregulated, unethical practices which led to this won't be punished, most bankrupt agencies pick up the pieces and evolve into a new entity.
Another Un Natural Disaster in which the poor are blamed and the Rich have an opportunity to get richer..
I welcome the opinions of anyone who can explain this to me in more accurate terms!