Real Estate Crisis?!?!
The United States housing and economic crisis is nothing more than the blind leading the blind.
Obviously, the United States of America and perhaps the entire world is in the midst of what has been termed a “global economic downturn. In my opinion, that is simply a politically correct way of saying that banks and borrowers have bitten off more than they can chew for far to long and now it is time to meet the inevitable end. What is that end? I am not sure that anyone know or has the answer, but I suspect that the recession will reach far into 2010 and there will be more repossessions and foreclosures in the coming months.
What caused the economic meltdown?
The answer to this question is rather simple. The current economic troubles facing American was caused by overinflated home prices in major markets coupled with predatory lending by banks. What this means is that consumers threw caution to the wind and bought homes that were priced higher than they would ever be worth. This was exacerbated by the “house flipping” fad where people bought houses with the sole intention of selling them quickly for a profit. There is nothing wrong with wanting to make a profit, but the prices were driven by pure greed and not by any natural market trends.
Enter the predatory lenders…
The best way for a bank to make a profit is to borrow money at a lower rate than they charge to loan money. It is a system that has worked for centuries, until greed gets in the way. We all know that the banking industry is fooled by and built on abject greed. It is this blind quest for money that has brought many of the world’s largest banks to the brink of failure. Some have even failed totally and other were rescued by various governmental interventions. It is these government “bailouts” that has lead to unprecedented changes in political offices. Many people would argue that Barak Obama was elected President of the United States partly because of the Republican administration’s mismanagement of the housing problems.
The banks and lending institutions created this problem by actively pursuing the subprime lending market. This means that banks loaned money to people who either could not afford it or whose credit ratings did not indicate that they had a good history of repaying debt. Add to this the fact that banks were allowing people to borrow money on overvalued property and you have a recipe for disaster. Unfortunately I missed hard-working taxpayers are going to have the responsibility of financing the fiasco born from these poor business decisions.
What is a bail-out?
Well, if you’re talking about a sinking ship of bailout would be the act of desperately throwing water out of the ship in an effort to prevent the ship from sinking. If you’re talking about what governments around the world are doing to prop up sagging economies then it is anyone’s guess.
The United States government has allocated at least $750 billion to buy what they are calling “toxic assets”. Basically what that means is that the US government is going to take taxpayer dollars and reward banks were failing while tens of thousands of US homeowners facing foreclosure and eviction.
So in simple terms, the bailout of the American financial and mortgage institutions means that honest hard-working American business owners, blue-collar workers and taxpayers will have to foot the bill while corporate executives with golden parachutes and multimillion dollar salaries continue to do business as usual with little if any oversight.
“There are a thousand hacking at the branches of evil to one who is striking at the root.” — Henry Thoreau
Question on everyone’s mind is will these bailouts help the US and world economies. One could certainly argue that the best way to stimulate the economy would be from the bottom, or roots up instead of from the top down. These mortgage companies and banks and financial institutions have demonstrated poor risk management. What guarantees do the taxpayers, who are funding these bailouts, have that this money will be regulated and better allocated and that has been previously demonstrated? The answer is, unfortunately there is no guarantee. In fact if passed behavior is any indication of future performance these billions of dollars are destined to be squandered on other toxic investments in subprime lending.