Author: Ursula Knecht Added: October 21, 2008
I was recently asked my views on what is happening in the world financial markets. I am an absolute beginner with that level of money so take the following with a grain of salt. Probably all a bit predictable mate and massive food for the conspiracy theorists as what will inevitably happen is that the Senate will "reluctantly" approve the $700 billion bail out - meaning that battlers get screwed as they lose their homes and CEO's retain not just their jobs but their bonuses... One of the unfortunate side effects of capitalism is that big business has more ability to influence government(s) than regular dudes on the street do. So the "Wall St" people will promise both sides of politics that they will carve them up for dinner unless they get a cash hand out blah blah blah So then the government effectively becomes the risk taking banker by default but had no choice in selecting the clients who are struggling to pay their mortgage. Most of these people were never going to be able to pay the monthly's they signed up for.* Eventually the government will end up in the same position - no ability to pay its commitments. (If you take a look in Fort Knox where they used to store the gold that backed the dollar you'll see a bunch of IOUs...) Then there will be a melt down. If you can keep paying your mortgage for a couple of years in the face of skyrocketing prices for food and fuel- everything will sort it self out. Therefore a government job that you cant get lose (no such thing anymore) would be a good thing... Those of us in business will have to work harder to attract increasingly rare dollars. Belts will be tightened, special deals containing overwhelming value will be offered just to get people to buy. Low to no cost advertising (net etc) will be bigger than ever. If you don't have a vegie patch now - you probably will soon. * If you are not sure what the sub prime thing is all about... People who can't get a regular bank loan because they don't really stack up as a good credit risk go off to mobs (Fannie Mae, Freddie Mac etc) that will give them the money and charge a bit more interest. The problem deals have been written with honeymoon periods of 1 to 2 years where the interest rate is 1% - 2%. After the intital period the loan flips to an average of 10%. Many of the people getting these loans are so out of kilter financially that 1 in 15 don't even make it to the first payment. Another 1 out of that 15 doesn't complete the first year. At the two year 'switch over' point 3 of the remaining 13 bail out. Traditionally 'mortgagee in possession' auctions have taken place literally on the Court House steps in the US. Now they happen in convention centers. The US banks have a new expression. "Jingle Mail" It refers to people walking out and mailing the keys to the house to the bank.
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