How the Credit Crunch is Hitting Home

MyStreet

What is really sad is watching what this economic "crisis" is doing to a younger generation.

Ask how an average high school graduate who wants to further their education is supposed to make it happen in today's economy.

Unless they come from affluent family's, they hardly have the means to begin making it on their own. This economic "crisis" certainly present them with challenges that most adults have trouble handling.

middle class american of CT @ Oct 05, 2008 06:41:43 AM

Credit crunch

It hasn't been since the 1950s that we were as dependent on the health of commercial banks and the federal government for the solvency and growth of our economy as we are today. Since the 50s, a wealth of commercial finance companies, investment banks, mutual funds,. hedge funds (an estimated $2.25 trillion in global assets under management from this source alone)and an assortment of large and small pension funds, insurance companies, thrifts, credit unions and individual billionaire investors (eg., Warren Buffett) have emerged to fund our insatiable appetite for credit, pleasure and material wealth.

Most of these institutions are on the sidelines, some sitting with hugh cash reserves others with assets drained away by market losses and investor liquidations, and still others gone forever with a wave of the bankruptcy wand.

The independent investment banking firm is no longer available to underwrite municipal and corporate obligations, buy, sell and otherwise distribute corporate commercial paper or fund initial public offerings...anyone hear of an IPO recently?

Our free market economy is rapidly being pulled back into the hands (some would say finacial black hole) of a few giant banking firms--now a heavily regulated oligopoly with broad lending, investment banking and insurance powers--and the federal government. The consolidation has been swift and violent. Markets worldwide are beginning to reel. Retrenchment, more like an avalance than a snowball, may prove to be uncontrollable, despite the just passed $850 billion "stablization" bill.

We all worry about the availability of consumer credit and reflect on how a recovery of housing will somehow start us on the way back. We, as consumers, could soon find out what happens when the global engine stalls. Few developed countries have the protective reforms and regulatory mechanisms we have installed since the

Great Depression. The fallout from our distress could be severe--particularly on developing countries.

A fundamental tenant of credit--the underpinning of our modern industrial economy--is that the borrower has both the will and means to make good on his repayment commitment. Regenerating confidence that the building avalanche of failed credit markets can somehow be slowed or deterred represents a huge challenge for G8 countries over the next few months. Hunker down. Decompression could be nasty.

Walt H. of CA @ Oct 05, 2008 05:23:13 AM

We need the next BIG IDEA

750 to 850 billion can go a long way if it is spent the right way. And for our sake, 's hope the people put in charge will do the right thing or we'll all be toast!

1) The first thing we need to do is to create more jobs! Stop waste. For example, why do we keep rebuilding in hurricane-ravage areas. There is a glut of homes all over. Let's have those people in hurricane-ravege move in to those homes through goverment-assisted home loans.

2) Job creation can come from energy. Nuclear in states where these is no wind and sunshine, and build solar and wind energy where they are most suitable. This creates jobs here in the US and will put hostile countries toward our seriouness toward energy independence.

3) Plant sugarcanes in the hurricane-ravage areas instead so we can use them for alternative fuel.

4) Use only gasoline for heavy equipment for rebuilding our infrastructure and military. Everything else for daily commute should run either on electric, natural gas or alternative fuel.

These are just a few things we can do to start rebuilding our economy. We have to start leading again instead of following. Our government and leaders should be in the forefront. We cannot just sit back and do nothing. Let's do it! Write to representative.

james alf of CA @ Oct 05, 2008 01:59:14 AM

Government caused it - the market must fix it

I applaud the attempt to substitute some facts for the hysteria being sold to us by Congress. However, the evidence presented in the article doesn't stand up to scutiny.

Autos: The article says marginal buyers can't get credit. What's the alternative? The problem was marginal homebuyers getting loans they couldn't pay back becuase Government Sponsored Enterprises Fannie Mae and Freddie Mac to buy mortgages so risky the free market buyers would have never bought them. The article also says "prime" buyers are affected too. That's not surprising given the amount of capital absorbed by government spending and the uncertainty created by the government induced crisis.

Stock Market: The market recovered most of Monday's losses the next day. Making these kinds of decisions on the basis of a one day gyration is the worst kind of decision making that any professional investor would advise against. The market crash of 1987 was worse and 1987 finsihed higher than it started.

Decades of Federal Reserve policy that artifically lowered interest rates has distorted the risk-return tradeoff and created the bubble and it's now impossible to tell where the bubble stops and real economic value starts. That has to be done mortgage by mortgage, auto loan by auto loan. One size fits all government policy has tragically failed.

The problem is that government is incapable of making decisions that improve the market because government mandate can't possibly make the fine tuned, case by case decisions the free market can. Only the free market can calibrate to risk-return tradeoff that builds a healthy economy.

There is no space here to address every apparent reason for the bailout. But it's my intention do so on the Manhattan Libertarian blog at www.serfcity.wordpress.com.

Ron Moore, Chair Manhattan Libertarian Party of NY @ Oct 04, 2008 13:27:12 PM

Bailout aka Rescue Plan

No Longer a Democratic Republic

I believe that we are now a Socialist Republic, given the passage of the Wall Street Bailout Bill. This is very distressing to me since I am a patriotic, military brat. What should we expect our young people to fight for? We have lost our singular claim to capitalism. We are on our way to losing our freedoms whether due to excessive taxation or oppressive laws/bills.

Some people obsess over the separation of Church and State, but what about a separation between the private sector and the taxpayer. Who and what will we be expected to bailout next? This threat is even bigger than terrorism and was started by the Democrats in 1999 with the founding of Fannie Mae and Freddie Mac. And may I point out that the former heads of both are now financial advisors to Barack Obama. If he is elected we will all be speaking some Middle Eastern language, if we are blessed enough to be allowed to survive. I do not fear for myself, but for my children who will be left to pay for the greed and incompetence of Wall Street and Pennsylvania Avenue. The Democrats actually made it illegal for these institutions to lend with any sense of financial prudence. Why would any thinking person want to vote for the Obama/Biden ticket knowing of his ties to terrorism?

Deborah Andrews of GA @ Oct 04, 2008 12:21:34 PM

our own fault

I have to disagree to a certain degree. We have not been led by anybody we have blindly jumped into darkwater on our own lured by the bait of credit that used to be very attainable by anyone with a blind eye to their own reasonable means. Let's not foregoe what has brought on this crunch. We have spoken for nearly every penny each month with our desires for THINGS! Maybe we all need this reminder to learn how to live, happpily with less.

mike of @ Oct 04, 2008 00:04:41 AM

The “credit crunch” is a long overdue and necessary correction. Don’t let the news media and pundits trick you into thinking it’s a bad thing.

Let’s assume for the sake of argument that the “credit crunch” is the beginning of a fundamental and permanent change in the national standards of issuing credit.

What would this mean for you, the average American? It means you’ll need to build good credit in order to attain the lifestyle you want. It means Americans will be forced to stop living beyond their means. It’s that simple.

If you’ve already been saving your money and living within your means, you have nothing to worry about. You have a nest egg, your money is working for you rather than against you, and you’ll still be able to borrow the money you need for major purchases such as a house or a car.

On the other hand, if you’re one of the many Americans living deeply in debt, there will be some painful changes in store. But let me explain why you too will be better off.

Right now, most of your paycheck is going toward paying back high-interest loans and credit card debt. The deeper in debt you get, the more of your paycheck goes to paying interest to your creditors. This causes you to borrow even more to sustain your lifestyle. It’s a vicious cycle: the more you borrow, the more you’ll need to borrow. Left unchecked, it will force you to work your entire life.

What will happen if you have bad credit and the “credit crunch” is for real? You won’t be able to think about major purchases (like a house or a car) until you improve your existing financial situation. You may not like it, but it’s not a bad thing. Bankers who were willing to give you a loan despite bad credit were NOT your friends. They were taking advantage of your situation, ensnaring you in high-interest debt and then sitting back to watch the money pour in. These predatory lending practices help the rich to get richer while the poor get poorer. The tightening of credit standards will put an end to this.

This “credit crunch” might just prove to be the dawn of a healthier society; one where the rich stop getting richer at the expense of everyone else and ordinary Americans can look forward to retirement instead of a lifetime of paying off debt.

http://robweblog.wordpress.com/2008/10/01/debt-nation

MarketRob of WA @ Oct 03, 2008 21:48:04 PM

Bail Out

Too much credit for individuals and credit card companies are still sending credit cards to everyone. Real estate agents are selling property to individuals that can afford only a 100,000 home and are being told they can afford a 500,00 home by the agents. The agents get their money but after a few months the mortgage companies get their hit in default payments. Too much greed has taken over the consumers . Unemployment has taken a hit by families who are living from pay check to pay check and are now in trouble more than ever. The bail out may help in the end but it will take time . Possibly 5 years to overcome this recession.

H.R. Jefferies of TX @ Oct 03, 2008 19:24:12 PM