what does it mean that the US markets are in turmoil and in threat of collapse?
Do you remember 1929? Well no you don't but you know what happened then yes?
Well some people are saying it's going to happen again unless the government steps in.
since we have helped everyone else in this world except the people in our own backyards ... we are in for a long & painful recession .
Home finance companies were having appraisers rate homes at more than they are actually worth . People took out these large mortgage loans thinking they could sell their homes at the appraised price . Not !!! Now they are losing their homes to foreclosures as they can not pay for the loan . Thats only a small piece of the answer . I'm not really sure myself brit . But I have no idea how people get themselves in such grave debt .
There was a couple on Oprah Winfrey that owes NINETY THOUSAND DOLLARS on credit cards alone . I often worried about our credit card debt, but after hearing these horror stories, we owe peanuts compared to that . I'd drive my car off a cliff if I owed that much .
I'm thankful that we are in the position that we pay our bills on time every month . Even if we do only make our minimum payment or a bit more . We are safe, for now .
Well I think it's rather more to do with the global financial markets being based on speculation and feelings of confidence rather more than any of us non-financial people would probably believe.
We've seen before companies lose almost all their "paper value" overnight because investers lose confidence and sell sell sell, speculators bet on how low it'll go and so on. Then you get people speculating on when it'll get bought and how much the share price will go up.
In other words to some of the financial players out there, this is a huge game and despite the way it looks, *SOME* people are making a huge amount of money out of it :(
At least the US is trying to do something. Who knows if it's the right thing.. I'll be interested to read the text because throwing money at the problem just seems to me like you'll be effectively giving it to the get rich quick people... but still it's more than I've heard the UK government trying to do :(
b/c Wall Street has come close to crashing . If banks fold, people can't get their money . The world as we know it will come to a standstill . No banks, no jobs . People standing in bread lines . Well, maybe not as bad as 1929, but close to it .Originally Posted by britchick, post: 52883
Two businesses in NY are now excepting Euro's and they are getting trashed because of it . They are doing what they have to, to stay afloat . I don't blame them . I'm not certain of the correct answer, britchick . Just repeating what I have heard on the news & Oprah .
And its not one credit card , these people have thirty different credit cards .
ok...thirty cards??? who gets that many cards? I mean really....we don't have nearly that many but plan on finishing paying them off and cutting that number down ...to like 3 maybe. 1 for emergencies, 1 for car troubles and one for essentials between paydays..... we would go card free but jeeze...everything costs so much we would have to carry a load of cash and that's asking for trouble.
As Keith said, it's a number of issues that should have been monitored all along and the proper controls used, but they weren't. The regulations were on the books, but the regulators were asleep at the controls.
1. As Tinker said, part of the issue is the real estate bubble that began to deflate about two years ago and really burst in the past year. Properties were purchased and flipped--primarily by out-of-state investors, but locals as well--for higher and higher prices, which added to the overstated values of single and multiple family homes. I was doing some work for a real estate company at the height of the craziness, and there were eight four-plexes that were flipped at least seven times before construction was completed. I think they were flipped two or three times before construction even began. Talk about insanity! And that was just our local market!
2. Part of the real estate bubble involved people refinancing home loans and taking cash out of their homes for what ever reason. Some were renovating or remodeling, others used it to finance college for their children, travel, pay down other debt, etc. When defaults began on investment residences and readjusting ARMs (see #3), the value of all homes began deflating and many people ended up owing more than their homes are currently worth.
3. Another issue in the real estate arena is sub-prime loans. These are home loans issued at very high interest rates to people who wouldn't qualify for conventional loans. Most of these were/are Adjustable Rate Mortgages (ARMs), where the rate could reset every 12 to 24 months--usually higher. Most increased anywhere from .5% to 2% each term. And guess what? The people who couldn't afford these mortgages in the first place defaulted as soon as the rates reset. Keep in mind that, in addition to some people seriously trying to get a foothold in the real estate market, there were some unscrupulous lenders whose ethics could be questioned in many of these transactions.
4. The investment banking community purchases and resells mortgage packages as investments. This is facilitated by Fannie Mae and Freddie Mac, two quasi-governmental companies. They were created by the government "with the faith of the US government" (or words to that effect) behind them, but actually are private companies. And were operated with little or no oversight--you can see where this is leading. When real estate values deflated and homeowners defaulted, it affected the investments in many portfolios, including 401K and similar retirement plans, cities, counties--whoever invested in these packages.
5. In addition to the real estate woes, the anti-trust laws were cicumvented and some banks, insurance companies and investment firms were allowed to become too large--hence the "too big to be allowed to fail" statement. Also, the products of these companies--particularly banks--were blurred when sold, so many less sophisticated bank clients were caught in uninsured accounts (investments, money market accounts, etc.) that they assumed were insured because the bank itself was FDIC (Federal Deposit Insurance Corporation) insured. Again, questionable ethics by some banks.
6. And, as Keith mentioned, there are confidence issues with the financial world in general. The UK suspended short selling (buying and selling stock expecting the value to decrease) well over a week ago, and the US finally followed suit. The US ignored the controls in place--once again! :sigh;
Since finance is global these days, all of these issues are affecting the banking and finance industries in most developed countries, as well as the US. Another area that hasn't been regulated--and is supposed to be--is investment by foreign governments in key US industries--which includes banking and finance.
This entire mess has brought the US credit system practically to a halt. What money can be loaned/borrowed is at very high interest rates. Companies that operate using OPM (other people's money) are in a very difficult position. They borrow just to operate. This includes banks (you really don't want a lesson in how the Federal Reserve system operates, do you?), as well as industry.
Now, the US taxpayers are being asked to fork over $7 BILLION to bail out some of these financial firms--and the CEOs and other executives are being terminated or leaving prior to termination with huge golden parachutes (departing bonuses) that the taxpayers are expected to pay. The golden parachutes were intended to compensate executives if a company was acquired in a hostile takeover, not for termination due to gross negligence. Keep in mind, Bear Stearnes (spelling?), Fannie Mae & Freddie Mac and AIG (insurance company that handles workers comp and others types of insurance) already have been bailed out. This is in addition to that!
The proposal was made to Congress without any planned oversight for use of the money by a department that has no accountability to the taxpayers--essentially a very large blank cheque! Congress now is discussing oversight, investment in the companies that would be "bailed out" (mostly by purchasing overvalued, defaulted properties), and controlling executive compensation. And a few other things.
It's also becoming a case of "what can we get" for other companies--credit card companies because so many people have defaulted on their cards; the auto industry which, once again, failed to plan for higher fuel prices or scarcity and continued making huge vehicles (higher profit margins) instead of having a balanced inventory; and a number of other industries I can't even think about at the moment.
So, we have a mess, which is affecting the rest of the world. And their messes are affecting the US, as well.
Our mess is your mess, or vice versa. Everything will work out in the end, it's just a matter of how, how, much, how long, and how painful. And let's hope all of our governments do their jobs in the future! :)