Posts Tagged ‘Obama’
Many homeowners make the mistake of thinking re-financing is always a viable choice. This is not always true and homeowners can actually make a significant financial mistake by re-financing at an inopportune time. There are a few classic examples of when re-financing is a mistake. This occurs when the homeowner does not stay in the property long enough to recoup the cost of re-financing and when the homeowner has had a credit score which dropped since the original mortgage loan. Other examples are when the interest rate has not fallen enough to offset the closing costs connected with re-financing.
Recouping the Closing Costs
To determine whether or not re-financing is worthwhile, the homeowner should think about how long they would have to retain the property to recoup the closing costs. This is important especially in the case where the homeowner intends to sell the property in the near future. There are re-financing calculators readily available that advise homeowners how long they will have to retain the property to make re-financing worthwhile. These calculators require input such as the balance of the existing mortgage, the existing interest rate and the new interest rate. The calculator returns results comparing the monthly payments on the old mortgage and the new mortgage and also presents information about the amount of time required for the homeowner to recoup the closing costs.
When Credit Scores Drop
Most homeowners think a drop in interest rates immediately signals that it is time to re-finance the home. However, when these interest rates are combined with a drop in the credit score for the homeowner, the resulting re-financed mortgage may not be favorable to the homeowner. Therefore homeowners should carefully consider their credit score at the present time in comparison to the credit score at the time of the original mortgage. Depending on the amount interest rates have dropped, the homeowner may still benefit from re-financing even with a lower credit score, but it is not likely. Homeowners can take advantage of free re-financing quotes to get a rough understanding of whether or not they will benefit from re-financing.
Have the Interest Rates Dropped Enough?
Another common mistake homeowners often make in regard to re-financing is re-financing whenever there is a substantial drop in interest rates. The homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings for the homeowners. Homeowners often make this mistake because they neglect to think about the closing costs associated with re-financing the home. These costs may include application fees, origination fees, appraisal fees and a variety of other closing costs. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates.
Re-Financing Can Be Beneficial Even When It is a “Mistake”
In reality, re-financing is not always the ideal solution, but some homeowners may still opt for re-financing even when it is technically a mistake to do so. This classic example of this type of situation is when a homeowner re-finances to gain the benefit of lower interest rates even though the homeowner winds up paying more in the long run for this re-financing option. This occurs when either the interest rates drop slightly but not enough to result in an overall savings, or when a homeowner consolidates a significant amount of short term debt into a long term mortgage re-finance. Although most financial advisors may warn against this kind of financial approach to re-financing, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their mortgage payments. In this situation the homeowner is making the best possible decision for his own personal needs. Copyright 2008 Promotions Unlimited – websitetrafficbuilders.com. All rights reserved
RECESSION? OR DEPRESSION?
What’s the difference between a recession and a depression? What’s a recession? How do we know if we’re in one? These are questions we all want answers to during these turbulent economic times. A glib definition is, when your neighbor loses his job it’s a recession. When you lose your job it’s a depression. The standard newspaper definition of a recession is a decline in the Gross Domestic Product GDP for two or more consecutive quarters. However, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected. The Business Cycle Dating Committee at the National Bureau of Economic Research NBER provides a better way to find out if there is a recession taking place. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. By this definition, the average recession lasts about a year. What goes up must come down.
Periodic recessions are a natural part of any nation’s economic cycle. Most analysts pointed to fears surrounding the United States economy and a possible recession as the reason for the drop. Three days later, news outlets were already reporting a new economic stimulus package designed in part to try to prevent a recession. This isn’t the first recession news in recent memory. The old saying goes that economic forecasters were invented to make meteorologists look accurate. When the weather reporter predicts snow, one can look outside to see if the forecast is correct. But when an economist predicts a recession, the only verification is the opinion of other economists. Unlike snow, no one can be sure when a recession has begun, or when it has ended. Interest rates usually fall in recessionary times to stimulate the economy by offering cheap rates at which to borrow money.
Another indicator of a recession is a sudden rise-at least two percentage points-in the unemployment rate. Example: The general business recession caused high unemployment in the rust belt and low interest rates throughout the country. Whether a recession develops into a severe and prolonged depression depends on a number of factors.
A depression is a severe economic downturn that lasts several years. Fortunately, the U S economy has not experienced a true depression since the market collapse in 1929.
The Depression of the 1930’s was aggravated by poor monetary policy. The “New Deal” created many government programs to end the Depression, but government programs alone could not end it. We probably won’t see a depression like that again, simply because the government has learned how to avoid it. Many laws and government agencies were put in place because of The Great Depression with the express purpose of preventing that type of cataclysmic economic pain. It was the longest and most severe depression ever experienced by the industrialized Western world.
The Great Depression began in the United States but quickly turned into a world wide economic slump owing to the special and intimate relationships that had been forged between the United States and European economies after World War I. The Depression hit hardest those nations that were most deeply indebted to the United States, i e , Germany and Great Britain. The Great Depression had important consequences in the political sphere. In the United States, economic distress led to the election of the Democrat Franklin D. In Europe, the Great Depression strengthened extremist forces and lowered the prestige of liberal democracy. Prior to the Great Depression, governments traditionally took little or no action in times of business downturn, relying instead on impersonal market forces to achieve the necessary economic correction. After the Great Depression, government action, whether in the form of taxation, industrial regulation, public works, social insurance, social-welfare services, or deficit spending, came to assume a principal role in ensuring economic stability in most industrial nations with market economies.
Many factors can cause a recession to slip into a depression. Not the least being greedy CEO’s and inattentive members of congress. Probably the quickest, but least desirable, way out of a depression is war. WW2 is a perfect example. Economists cannot agree on the exact way to end a depression as no democracy has existed this long, so they have no road map to follow and are more or less feeling their way along.
There are two current theories under debate. 1) The unprecedented infusion of resources into the depressed economy will result in accelerated boom-and-bust cycles. This may result in the dissolution of our economic system as we know it. Or: 2) The unprecedented infusion of resources into the depressed economy will result in a long-term, painful recovery of our economic system. In either event, there does not seem to be a painless, “quick” fix that will make everyone happy and prosperous.
Let’s take a look at the facts: Housing prices are rising at a clip of 10-15% per year, tuition costs are rising by an average of 10% each fall, and energy costs – well, the average rise in prices depends on the week you happen to be looking at, but double-digit increases have been the norm for the past few years. And now, the really depressing fact: Average wage increases have hovered between a measly 3 and 4 percent for the past three years. Now what, you ask, does any of this have to do with car financing?
Hey, as simple as can be stated, it boils down to numbers. Interest rates: These are the hidden little killers that can destroy retirement plans and lifestyles over the course of a lifetime. Car financing is the second most important credit-related decision you will ever make, the first being the mortgage on your home. So, just as an example, let’s say that you make $30,000 per year and are looking to finance a $25,000 car over five years. The difference between attaining approved car financing at 6% interest and 16% interest equals $130 per month if you take the loan out over 5 years! And here’s the clincher – a 3% annual increase in salary will net you an extra $900 per year (and that’s before taxes), while saving $130 per month on your car financing puts nearly $1600 more dollars in your pocket. (And hey, that’s after taxes!) Even a few percentage points difference on your car financing can actually equal or exceed the raise you got from work this year!
I had no idea those tiny numbers could add up to so much money! What is my best option for getting an approved car finance plan – with the lowest interest rates?
In the end, your credit rating, and the interest rates it commands, can make or break you over the course of your life. Car financing is not rocket science, but you really have to be careful with the numbers – or you can end up paying thousands of dollars more than you have to. Your best approved car finance option is probably going to be obtained through a bank or credit union. The great things about getting your car financing through a bank is that you tend to get the best rates, personalized service, and you don’t have to worry about some pushy car salesman trying to shove useless add-ons down your throat every five minutes! However, banks and credit unions have higher car-financing standards, so you need decent credit to consider this as an option.
But wait a minute – the banks always take forever to process a loan, and the salesperson at the dealership can get me approved in minutes!
This is very true. But there is a price for that convenience, isn’t there? The dealer almost always offers you a higher rate on car financing – and be prepared for them to try and sell you every single add-on you never wanted in the hour it takes them to fill out the paperwork! That approved car finance arranged through the dealership may save you a week over financing through a bank – but just a few percentage points difference in interest rates can easily cost you $1,000 more each year for the entire length of your loan. So in the end…how much is that week worth to you?
All right…the dealer can be a bad option for car financing – but what about those online places that can approve me in minutes?
In all honesty, the Internet can be a great place to secure approved car finance. With the ability to hop around and shop the different sites, you can definitely get some decent interest rates, sometimes comparable to those offered by a bank – plus you can get approved in minutes, and be driving your new car in a day or so. So what’s the catch? Well, the Internet has more than its fair share of scammers just looking to get your social security number and other vital information. If that car financing information ends up in the wrong hands…well, you can do the math! Plus, the ‘Net can be terribly impersonal at times – but it is still a viable option for approved car finance at competitive interest rates.
Impulsive and poorly made car financing options can literally cost you the price of an entire new car over the course of your life. Approved car finance is available through a number of outlets, and each has its own benefits and disadvantages. However, if you want to be able to afford actually driving your new car someplace other than home and work for the next few years, you may want to avoid the inflated car financing, AND those useless add-ons, offered by dealerships.
If there were only two reasons for a business to fail they would be poor financing and poor management or planning. You can’t over-emphasize the importance of financing your business. Financing the business is not a one time activity as some might think. It is necessary whenever the need arises such as when expanding, modernizing etc. At this stage you need to understand the importance of exercising extreme caution and plan the utilization of capital. A wrong decision here can haunt your for the life of your business.
Are You Sure You Want To Raise External Funds?
For start-ups, it’s understandable that you need to raise capital through loans. But what about expansions and upgrades? Make sure that external financing is an absolute must before you apply. It is critical that you organize your finances at transitional stages but only after you make sure that you can’t do it yourself, either permanently or for some time. Equally important are the criteria of risk, the cost of not financing and how well it contributes to specific and overall goals of the company.
FINANCING TYPES
Equity Financing: Equity financing involves selling off of your shares (mostly partially) in return for cash and giving away that portion of ownership and rights to profits. Equity financing can be sought from private investors or venture capitalists. This brings about proper capitalization opening access to debt financing. Equity finance doesn’t need to be returned like loans unless your partner wants to withdraw.
Debt Financing: Debt financing is loan financing against some kind of guarantee of repayment. The guarantee can be collateral, a personal guarantee or a promise. Lenders restrict the use of debt finance to inventory, equipment or real estate. You need to properly structure the debt and the rule of thumb for doing so is giving long term debt for fixed asset loans and short term for working capital. The reason is that fixed assets generate cash flow over their lifetimes and have the benefit of lower interest rates as opposed to working capital loans.
Sources of Finance:
You can choose finance sources depending on your circumstances and the amount required.
1. Family and Friends: Small and short-term working capital requirements can be financed quickly through your own resources or through family and friends. The benefit here is the absence of the interest component (mostly.) This method of raising finances is handy even in early stages of business. You should be mindful, though, that disputes over money are the main reason that close relationships turn sour.
2. US Small Business Administration: This is the most prominent source for debt financing. The SBA doesn’t lend money directly but organizes and guarantees loans through various lenders and sources under its umbrella. Local governments, banks, private lenders, etc. disburse loans immediately to businesses approved by the SBA. SBA loans are available for various business purposes and at the lowest interest rates available.
3. Venture capital: Raising venture capital is organizing financing through selling shares whose value equals the finance you require. Essentially this means selling a portion of the ownership and control rights. It is essential that a proper valuation of your business’s worth is made before the deal is done.
Financing a business shouldn’t be hard provided you have established your credentials as a good manager, have collateral/assets, a convincing cash flow statement, genuine need, a proven track record, good credit history and a robust plan. This should not just save your business from collapsing but also allows it to grow and succeed.
A Recession-Proof Business Is the Security Your Future Needs
It’s no secret that the economy is in trouble. Professionals debate daily as to whether we are in a financial recession, or whether we are just headed in that direction. All of a sudden, we feel insecure about our jobs, our savings, and even our retirements. With so many businesses failing, it’s hard to imagine that starting a business of your own would be a good idea. The fact is, there has never been a better time to start your own recession proof business at home.
How Can A Business Be Recession Proof?
One characteristic of a recession-proof business is that it provides a product or service that will not go out of demand. Certainly, plenty of people are having to make sacrifices on how much they spend not only on the “extras”, but also on the necessities. Finances for many of us have taught us to set up priorities on how we use our money. That means giving up unnecessary purchases but not the things we need in order to survive. If you provide a necessary product or service, you will have a recession-proof business.
It also depends on your target group for which you provide you product or service. Not everyone is in the market for the same things at the same time. Everyone’s finances aren’t affected in the same way and by having the right target group, you can recession-proof your business.
Some Advantages to Having a Home-Based Recession-Proof Business
Flexibility is always one of the most attractive features to any home-based business. For parents of young children, this could mean not having to pay for child care while getting to spend more time with your children. If a student has classes and needs to work around them, a home-based business will let them work around their own schedule without worrying about someone else’s priorities. Whatever you need to find time for, a home-based business will give you the freedom to spend your time where you need to spend it. A home-based recession-proof business will not only provide flexibility of your time, but will also provide you with financial security.
Another advantage to having a home-based recession-proof business is that you will never have to pay for the gas to drive back and forth to the office again. Many people commute long distances for their jobs and over the last couple of years, this has gotten to be a financial burden for many. When you work at home, there’s no fuel used, no wear and tear on a vehicle, and you don’t even have to go out to eat lunch!
Of course, one of the biggest advantages you will have from starting your own home-based recession proof business is not having a boss to answer to. You don’t have to worry when the economy worsens that you will go into the office one morning to have your boss tell you that he is “letting you go”. A recession-proof business is one that will give you the security to make your own decisions and to benefit from your efforts.
Copyright (c) 2009 Stephen Lau First of all, credit is due to President Obama for his all-out efforts to rescue the country from the ailing economy and the greatest financial crisis the nation has ever faced since the Great Depression. However, this Herculean task may be too overwhelming even for our energetic president. It is like a sinking ship, and the captain is frantically bailing out water: it may be a heroic but fruitless task. The main problem of this current financial crisis is that no one in the financial world could really get a handle on the severity of the innate problem. Just a few months ago, even Bernanke, the Federal Reserve chairman, also an expert on the Great Depression, thought the initial financial bailout would stop the bleeding of the whole financial system. Now, the magnitude of the crisis is beyond every one’s guessing. In short, nobody in the financial world had expected the catastrophic impact of the fallout of this financial implosion. It is by no means the fault of President Obama, or that of Bernanke. Both have reacted promptly, efficiently, and relentlessly to the crisis. The problem is multifaceted and just too complex for any human mind to get a grip on until it began to unfold itself. There are simply too many bubbles involving too many levels of the financial sector – and they all bust one after another, causing the rippling domino effect across the financial globe. Over-priced bonds backed by bad subprime mortgages, packaged by unethical Wall Street firms sold to greedy investors. It was a pack of lies, myths, and phony prosperity that had fed on itself for decades, and now is the time of reckoning. The result is delinquent mortgages, bad loans, bankruptcies, leading to little or no cash flow – and hence the financial world is grinding to a halt. The root of the problem is that the prosperity in the past decades has been a phony one – created out of thin air. It was an illusion, and now everybody has become disillusioned. It is like waking up from a wonderful and mesmerizing dream, and one still clings desperately onto that dream, refusing to be brought back to the real world. Why President Obama’s bailout plan may not work! The explanation may be quite simple. According to Albert Einstein, insanity is repeatedly doing the same thing and yet expecting a “different” result. This is precisely what the U.S. government is striving to do with the bailout plan. We have got ourselves into this financial mess, because, for years, the Americans have been spending the money they don’t have to buy the things they don’t need. The current crisis is a product of reckless spending and euphoric optimism. Now, the bailout is similar in that it intends to spend trillions of dollars that the government doesn’t have to bail out the banks and firms that don’t deserve – or may not even eventually survive after the bailout. The bailout is creating an illusion that things will improve, just as the American people have created an illusion of prosperity that would go on forever. Recently, the Treasury Secretary blasted investors for not knowing what they were buying, which led to this current financial crisis. Ironically, isn’t this is exactly what the government is currently doing – repeating the same mistake? Part of the bailout plan is to buy troubled mortgages and bonds at a fair price so that the banks will take the cash and therefore be able to make new loans. However, buying these troubled financial instruments is not only difficult but also risky. It is tantamount to what the American people have been doing – buying things they do no need with the money they do not have. President Obama’s bailout plan may pump trillions of dollars into the financial world, but whether it will solve the problem is everyone’s guessing. Robbing Peter to pay Paul is never a solution to any problem – at least not a problem of this magnitude.
A new Bank Bailout Plan unveiled last week may give new hope to distressed homeowners and communities. Treasury Secretary Tim Geithner recently announced the government’s plan to commit over $1 trillion in reforms aimed at rescuing the country’s financial system. The program would amend weaknesses in the bailout plan proposed by the Bush administration, and override other previous reforms.
Much of the funding would go into financing loan purchases and reviving the economy through increased lending activity. The key points of the program include:
Support for bank lending
The Treasury aims to advance the capital position of major banks to boost lending activity. This would entail a three-part process:
“Stress test”: Banks and financial institutions will be checked to ensure they have enough capital to keep lending, and whether they can survive future economic downturns. The government will tighten its rules on public disclosure of a bank’s holdings, and those with assets over $100 billion will be assessed individually.
“Capital Assistance Program”: The CAP will build on previous efforts by theTroubled Asset Relief Program (TARP), which has put $250 billion in capital purchases. The Treasury will continue to help banks rebuild their capital following the stress test, and take preferred shares in banks taking part in the CAP program. According to Geithner, this will serve as a buffer for banks that can benefit from increased lending.
“Financial Stability Trust”: The FST is a separate trust to hold the investments made by the Treasury under the program, and will be maintained by a group of fund managers.
Buying up troubled assets
This section is designed to help relieve banks of “toxic” or hard-to-sell assets and put more of their efforts into private lending. The goal is to buy up these assets using a combination of public funds and private capital, with the private sector taking charge of the price assessments. The costs of this goal are still uncertain, but the Treasury expects to generate up to $1 trillion from the investments.
Consumer and business lending
The Treasury also plans to restore the flow of credit by increasing lending in the consumer and business levels. This goal builds on the proposed Term Asset-Backed Securities Loan Facility (TALF), but will increase funding from $200 billion to $1 trillion in federal lending. Under the plan, the government will purchase securities backed by consumer and business loans, such as auto loans, small business loans and credit cards. The plan will put a premium on higher-quality securities to minimize losses for taxpayers.
Improved transparency and accountability
Banks and financial institutions who benefit from taxpayers’ money will be closely watched to ensure they don’t misuse public funds. Any companies receiving bailout funds will have to meet new requirements and operate under tighter restrictions. For instance, they will need to submit a plan for spending the government aid to increase lending, and upload monthly reports on the website www.financialstability.gov. Details of all transactions will also be posted on the website 5-10 days after each one is completed.
Companies receiving federal loans will also have to limit dividends to 1% per quarter until the debt is paid. Until then, they cannot re-buy private shares or buy up other banks without consent from the Treasury. A cap will also be imposed on executive pay for CEOs, and lobbyists will be banned to keep them from influencing the Treasury’s decisions.
Housing and foreclosure assistance
The new plan will lower interest rates to provide more affordable housing and reduce the risk of foreclosure. This program will cost $50 billion in the first weeks following implementation, during which loan modification guidelines will be established and existing programs will be adjusted. Under this plan, all companies receiving financial assistance will need to participate in the foreclosure mitigation plan (currently, only Citigroup and the Bank of America are taking part).
For homeowners, the government plans to spend $600 billion to buy up existing mortgage-backed securities from Fannie Mae and Freddie Mac. This will allow them to lower mortgage rates and make housing more affordable for families in distressed communities.
Small business lending
Small businesses and community lenders will also benefit from the bailout plan through lower borrowing costs and increased lending activity. Key elements will include buying up loans from the Small Business Administration (SBA), reducing fees, and increasing loan guarantees up to 90%.
Loan modification options
The new bailout plan may offer new options to homeowners seeking Loan Modification and other forms of mortgage assistance. Luckily, most loan modification companies have adjusted their programs to better comply with public policies. To know more about your options under this bailout plan, visit : http://www.cdloanmod.com/loss-mitigation-news
Nobody wants to face a recession. It is because people fear of losing their jobs, stock market crashes, people go bankruptcy and so much more can happen. However, this is something nobody can avoid it and must learn how to face it. So what actually is considering as an economic recession?
In most country, it is normally defined as a technical recession when there are 2 consecutive of negative growth in terms of their GDP. Such situation will causes a lot of panic as the entire economy slows down. There are always sign of such event before it even gets started. Consumers spending will drops, employment rate in the country decline and industrial manufacturing production drop and there will be more volatility in the stock market.
Historically, an economic recession will normally last for a period of about 1 to 2 years as cited by a lot of expert.
Why Can’t the Government Stop Recession?
Recession period causes a lot of stress to the people and most people will the finger to the government. However, it is important to know that recession is deflationary in nature and if the government tries to rescue the economy, they would have to pump in a lot of money to improve liquidity. Such move will cause an after effect of increase inflation which will possibly lead to stagflation. That is why most government is always very cautious in this move whether to increase liquidity to the economy and reduce increase rate.
How Economic Recession Normally Get Started?
It is a fact that the rich will always get riches while the poor gets poorer. When the rich sees an opportunity, they will know how to speculate the market as though it is a great way to make money. After a while, the rest of the population will follows and started to make some quick money. The combination effect of all the poor and middle income people make the entire market so huge and nobody will ever think of supply and demand. Economic bubbles will soon explode and it will be fierce and fast. However, the rich would be smart enough to exit way before such bubbles occur. So it is the majority of the population who will suffer and the governments are force to step in to clean up the mess.
Phases Of An Economic Recession
There are always few phases an economic recession has to go through, that is the period of slowdown, recession, recovery and than expansion again. Usually the period of recovery and expansion will last much longer than the period of slowdown and recession. Most people like to chase after money during the period of expansion, when the market is very hot and this is a sure loose strategy. Most people will never learn that they should position their investing during recession period where everything is at their cheapest.
How to Rescue a Recession
Lowering interest rates is the most common measures the government will take to help stimulate the economy. As mention earlier, the government will be very cautious in such move as this will cause inflation which will further dampen the spending from the consumer. It will normally implement over a period of times when situation forces them to do so. There are however times when the bubbles are so big that such recession lasted for a prolong period of times like the one happens on thirties. This will make the whole economies to go into depression which is the worst things that can happen.
Conclusion
So, please bear in mind that making money from the stock market is very possible but do not just chase after the market. You need to study the situation very carefully and the strategy of buying low selling high will always work. You need to have a long term vision and do not speculate. If you know the cycle of accumulating your cash during good times, start buying in during recession, hold and sell at good times and accumulating cash again …etc You will soon be the next wealthy man like those gurus. Remember, we will only face such cycles a few times over our lifetime and you must take opportunities of it.
Many people are wondering what caused the recent mortgage crisis in the United States. Was it the failure of Fannie Mae and Freddie Mac? Was it the fact that they were lending to people that had an inadequate means to repay their notes? Or was it a combination of events? More importantly what is the United States doing to stop the panic, and how will it affect international markets?
The record $700 Billion dollar bailout is largely the result of the failure of two of the largest financial lenders in the secondary mortgage industry. The lenders I speak of, Country Wide and Fannie Mae, failed as a result of a sub-prime mortgage crisis in the United States over the past few months. Many thought Fannie Mae would have nothing to worry about because it was created by the federal government. However the lack of oversight and their governance by Washington insiders left them almost above reproach. This proves to be a clear cut failure of the leadership that these two huge mortgage lenders have. The risky behavior that these companies implemented proved to be a huge mistake. And due to the fact that two of the largest mortgage lenders failed, the lending industry itself has slowed to a crawl. One of the reasons was a result of all the foreclosures and bankruptcies occurring in the United States. The other being that the financial institutions no longer trusted the solvency of their business partners. This would eventually lead to the drying up much of the liquidity in the market.
In general, United States mortgage crisis has definitely caused the aggregate financial markets to fluctuate radically. Banking had become a global industry with its web reaching into many countries. Foreign investors are frustrated by the unpredictability of the U.S. economy. Mostly, due to the fact that the United States government has no clear cut remedy for this mortgage crisis. A second thought is should the government intercede in a free market system, or let them fail? The United States Federal Government in order to impede the panic agreed to infuse $700 billion dollars in an effort to bailout the troubled industry. However this bailout will not only affect U.S. markets but will also drastically affect global markets and additionally the results of the bailout are not guaranteed. This has also prompted many other industries to seek governmental intervention in an effort to starve off their losses in a recessionary economy. Who could be next?
Internationally, when news of a potential bailout was heard, international markets fell sharply. The confidence in U.S. markets was shattered, and as a result the Yen and Euro hit all-time highs against the U.S. dollar. The only upside to this was an increased appeal of American exported goods to foreign markets. Some of the major implications of this bailout plan were seen on September 30, 2008. Many markets affected included Japan’s Nikkei Index, China’s Hong Kong Exchange, the London FTSE, and Russian Trading System were down notably at word of the rejected Wall Street bailout. In fact the RTS, dropped so sharply that it suspended trading until further notice, sadly this is not terribly uncommon in Russia. The international markets continued there extreme volatility until a final decision was reached by Congress to approve the bailout. Finally on October 1, 2008 the American Housing Rescue and Foreclosure Prevention Act of 2008 took effect to try and ease the nerves of international investors.
The Canadian and European markets slowly began to rise again after the bailout was secured in writing. The Russian Trading System rose 2.4% to 1,504.20 when the bailout was confirmed. The United States Stock Market of late has also begun to stabilize as well. Foreign investors still remain cautious because the American credit crisis is far from over. Signs of stability were starting to appear, but news of other bankruptcies in the United States may cause another slide in global markets. For example, some major banks in the U.S. have even started to fail like Washington Mutual and not close behind is Citibank. This also leads to an increase in bank mergers and consolidations. And with any merger there always seems to be job losses, thus leading to a rise in unemployment. The cycle of recession has a distinctive pattern. With unemployment rates hitting a 14 year high of approximately 6.5%, the U.S. economy is obviously in shambles and has the potential of heading toward a rough recession. This then leads many to still wonder if the financial bailouts are over or if the U.S. economy can recover successfully.
The United States is currently in the middle of a mortgage crisis. Foreclosures on mortgaged homes are at an all time high, and predictions say that billions of dollars of wealth will have been lost before its through. The effects of the crisis are being felt on all levels – aside from people facing foreclosures on their homes, many lenders have gone bankrupt. Finally, the government has decided to step in and provide some relief to lenders and borrowers alike. But the question is, just how will this government bailout affect a person’s mortgage?
What this bailout plan does is, unfortunately, pretty limited. It won’t help out everyone. What the bailout does on the level of the individual borrower is to freeze the borrower’s mortgage for five years. This keeps the interest rate of the mortgage down for a period of time so that the borrower can get their finances in order and dig themselves out of their situation. Unfortunately, there are a couple of stipulations on this program.
The first stipulation is that it only applies to people who have less than 3% equity on their homes. People with higher equity are simply out of luck. The second qualification is that the borrower must be no more than 60 days late paying their mortgage. Needless to say, for people who are already in severe trouble and have been missing payments aren’t helped at all by this.
In addition to the above qualifications a buyer would have to prove that he or she couldn’t afford increased interest in their mortgage. The government buyout plan also only applies to subprime mortgages – but there are many people struggling with prime mortgages who face financial difficulties, too. Unfortunately, this leaves a lot of people who were looking for a little relief out of luck.
The ultimate problem with this bailout program is that it only serves to delay inevitable outcome. The bottom line is that if you are living in a home that you can’t afford to live in, even if the government bailout helps you, you may still find yourself in trouble. Unless a significant financial change or a reduction in the interest rate or principle is in the wings, you chances are at the end of the five-year freeze you still won’t be in a good place.
Another perceived problem with the government bailout program is that it works to reinforce the behavior that put the housing market in the crisis it faces today. Subprime lending encouraged people to try and buy houses that they couldn’t really afford, and the bailout program is helping those same people. Meanwhile, people who had made smart choices about buying a home, but faced some other financial problem are left high and dry.
The unfortunate bottom line is that if you can’t pay your mortgage, chances are that the government bailout isn’t going to save you from foreclosure. Unless you have good reason to believe there’ll be a change in your financial fortune, it may be time to start preparing for the worst.