American Credit Crunch

[Punk Rooster]

Surely the recent goings on on Wall St have a massive influence over our lives?

My understandiung of the situation is this-
The American Poor were encouraged into home-ownership at a time of low (1%) interest rates, given easy credit, which enabled them to mortgage themselves to the hilt at 1% interest.
When interest rates couldn't be sustained at the low rate, & invariably went up, the American Poor were the ones who hit the wall first- being in behind the 8-ball to start with, & then getting worse.
The catch here is this- in America, if you can't meet your Mortgage requirements, you simply deliver the keys back to the bank & walk away from the mess. What an absurd situation!
Hence, all of a sudden, banks who've borrowed money to on-sell lose their income stream (mortgage repayments), & are left holding the bag- literally .
This chain of events has sent a few of them crashing, hence the the recent spate of events, & their effect on Wall St & consumer confidence.

Australia is more regulated than the US when it comes to this, so this scenario is unlikley to happen here, yet their market instability affects us all- especially those who are close to retirement/involved in short-term trading.

Is anyone here affected by these recent events?

[mick]

Surely the recent goings on on Wall St have a massive influence over our lives?

My understandiung of the situation is this-
The American Poor were encouraged into home-ownership at a time of low (1%) interest rates, given easy credit, which enabled them to mortgage themselves to the hilt at 1% interest.
When interest rates couldn't be sustained at the low rate, & invariably went up, the American Poor were the ones who hit the wall first- being in behind the 8-ball to start with, & then getting worse.
The catch here is this- in America, if you can't meet your Mortgage requirements, you simply deliver the keys back to the bank & walk away from the mess. What an absurd situation!
Hence, all of a sudden, banks who've borrowed money to on-sell lose their income stream (mortgage repayments), & are left holding the bag- literally .
This chain of events has sent a few of them crashing, hence the the recent spate of events, & their effect on Wall St & consumer confidence.

Australia is more regulated than the US when it comes to this, so this scenario is unlikley to happen here, yet their market instability affects us all- especially those who are close to retirement/involved in short-term trading.

Is anyone here affected by these recent events?

Yes I had >10% sliced off my super in the last financial year. I have moved my investment mix to cash from a share based investment strategy. I'll go back to the shares once things settle down a bit. I never put all my eggs in one basket I also have a real estate investment, there is an acute housing shortage in Australia at the moment, rental vacancy rate is 1% in Adelaide (2-3% is seen as a landlords paradise), don't get me wrong I don't gouge my tenant like agents do. I believe take a little less rent for a good tenant, who will stay long term, empty houses don't earn income. So the real estate is doing well, swings and round abouts I suppose

[smac]

I am (at this stage) taking this hit on my super, although I had shifted a lot out of shares earlier this year. It's part of the deal I suppose, given I am still a while off retirement it should be clawed back in good time.

But the effect I am seeing first is on my folks - they invest in the share market and Dad is semi-retired this year, was hoping to be fully retired by years end. That is now unlikely.

[Psyber]

The other issue that people got trapped with was one that also happened in Australia - notably Sydney.

Our brilliant decision to deregulate banks and promote competiton made loans easier to get, particularly because there was a proliferation of non-bank lenders wanting market share, and of Mortgage Brokers who made money for writing loans - so they wrote loans whether they were realistically affordable or not. The banks used them, too, to keep up their market share against the new competition. Mortgage Brokers also made more money on bigger loans, and an industry arose in which speculative builders over-valued house and land packages, Mortgage Brokers, and presumably friendly or persuaded valuers, confirmed these inflated values to the lending institutions who accepted them as they no longer employed their own staff to verify the values - they saved wage costs that way.

So, people bought house and land packages in new developments at prices they never were worth, and borrowed a percentage of that. The loans were more than the properties were ever worth. There was one street in Sydney where several re-possesed houses sold for much less than the loans - not because the market had fallen, but because they had never been worth the valuations put on them.

Lower interest rates, of course, helped to lure the inexperienced in.

"Independent Financial Advisors" are another issue. They all get paid by writing deals, getting people into investments they get a percentage for. In 2003 my elderly sister had a lot of money earning very little in cash management funds. As it was her money I was managing under Power of Attorney I did "due diligence". I consulted three financial advisors. Each suggested a totally different strategy, which was obviously influenced by their own connections. I dumped the lot and backed my own judgement - and did quite nicely.

In the case of brokerage firms like E-Trade and Commsec, they get money by encouraging rapid share turnover not stable investing, as they take a fee or percentage of each trade. This tends to increase the volatility of the market.

[Q.]

Funny and poignant explanation:

http://docs.google.com/TeamPresent?revision=_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true

[Psyber]

It is a masterly summation, Quichey!
I'll pass it on to my accountant!

[redden whites]

Who had been the biggest threat to America I ask. A couple of hundred wackos in the hills of Afghanistan or the greedy white collars smothering their collective snouts at the trough until it all fell apart. ? Where was the famous Homeland security bill and its protective measures to keep America safe from the "Evil Dooers" while all this was going on .

After all this I will laugh my tits off watching America borrow what was quoted as 7 trillion from the Arab World and probably China too to keep their society from falling apart.

OINK OINK OINK

Shame we will cop some pain too though I guess!

[JAS]

OK I know I'm not in Oz but I guess a similar thing could happen over there.

I've never been brave enough to rack up big credit debts so the effects of the 'crunch' etc for me were mostly the increased costs of everything BUT at the weekend the bank I have my mortgage with went under and got nationalised so now my mortgage lender is the Government.

http://news.bbc.co.uk/2/hi/business/7641268.stm

As someone whose financial life has always plodded along in a quiet, unexicting way I spent an extremely worrying few days waiting for more than the scare-mongering news stories...of course being a weekend that meant nothing until Monday. Incidentally I'm not one of the 'toxic' borrowers...I've never been in arrears with my payments. Still a little nervous about it all as I've never been directly affected by a company collapse before...but that's more fear of the unknown that anything.

Regards
JAS

[Q.]

Who had been the biggest threat to America I ask. A couple of hundred wackos in the hills of Afghanistan or the greedy white collars smothering their collective snouts at the trough until it all fell apart. ? Where was the famous Homeland security bill and its protective measures to keep America safe from the "Evil Dooers" while all this was going on .

After all this I will laugh my tits off watching America borrow what was quoted as 700 trillion from the Arab World and probably China too to keep their society from falling apart.

OINK OINK OINK

Shame we will cop some pain too though I guess!

The Patriot Act has ensured an erosion of civil liberties so that when the people finally get fed up with the fat cats and spill onto the streets in protest, they'll get locked up, beaten and shot for attending 'unauthorised' gatherings. The ring leaders of said protests will be monitored, then rounded up, and then made to 'disappear'. Freedom of press is already dead, so the media will provide no accountability, but rather suggest that true patriots obey government orders and that it's a good idea to dob in a neighbour if you suspect them of any subversive activity, they could be a terrorist!

[JAS]

Given the way the 'credit crunch' crap is working its way around the planet here's a little something to ask yourselves...do you know what banks your council keeps its money in?

I didn't until tonight...apparently more than 100 UK councils and some police authorities had funds in one of the Icelandic banks that has collapsed. Thankfully mine only had £2M in there but no matter what the government say I now expect my council tax to take an even greater leap next year

http://news.bbc.co.uk/2/hi/uk_news/politics/7660438.stm

http://news.bbc.co.uk/2/hi/uk_news/politics/7660741.stm

Don't assume nationalistic loyalty...they'd want whatever they think will give them the best return on their cash regardless of the flag they fly.

Regards
JAS

[Squawk]

The Patriot Act has ensured an erosion of civil liberties so that when the people finally get fed up with the fat cats and spill onto the streets in protest, they'll get locked up, beaten and shot for attending 'unauthorised' gatherings. The ring leaders of said protests will be monitored, then rounded up, and then made to 'disappear'. Freedom of press is already dead, so the media will provide no accountability, but rather suggest that true patriots obey government orders and that it's a good idea to dob in a neighbour if you suspect them of any subversive activity, they could be a terrorist!

Are you only speaking of the US here or are you implying that this applies to Australia?

[Q.]

It was mostly tongue in cheek, but the Patriot Act is US Policy. Although, we have attempted to adopt parts of it.

Freedom of Press is also fairly poor in Australia, again of an oligopolic nature.

[Squawk]

It was mostly tongue in cheek, but the Patriot Act is US Policy. Although, we have attempted to adopt parts of it.

Freedom of Press is also fairly poor in Australia, again of an oligopolic nature.

Any Act is govt policy of the day. Australian legislation is not modelled on the Patriot Act to the best of my knowledge. Any examples?

As for the Press, they are so free that not even ACMA wants to tick them off. If anything some of our broadcasters should have their license terms reviewed because broadcasters are under no pressure that they will lose their licenses.

If you refer to the News/Fairfax domination in the print media, I can understand that. They are very free to write but their freedom (at least with News Ltd) is 'governed' from the top.

[magpiemaster]

its so sad cause there couldnt be anyone benifiting from this. lets hope it turns

[JAS]

its so sad cause there couldnt be anyone benifiting from this. lets hope it turns

We have a tv programme over here called The Money Programme which had a show a few weeks back looking at who was benefiting from all the financial carp.

Apart from the obvious such as fat cats who will still get fat, debt collecting firms, pawnbrokers etc they interviewed several people for whom this is a boom time...including:

Take away food outlets (not just the big high street names)
Off-licenses (I think you call them bottle shops)
Video/dvd rental stores
All doing very nicely because more people are partying at home as it's much cheaper than going to restaurants/pubs/clubs etc.

Almost anyone who buys or sells second-hand stuff...furniture, clothing, cars etc
DIY stores (aparently a lot more are getting off their butts instead of paying a fortune to tradespeople)
Camping and caravaning shops...much cheaper than hols in hotels etc.

There were others but I can't remember them all.

So whatever happens to the ecconomy there will always be winners and losers...it's still a servere pain in the whatsit for those of us that have always tried to be sensible about our finances ie didn't go for the unaffordable mortgage option or amass thousands in debt on credit cards etc But things will turn round again...eventually.

Regards
JAS

[Q.]

Any Act is govt policy of the day. Australian legislation is not modelled on the Patriot Act to the best of my knowledge. Any examples?

Sorry for the belated reply.

Anti-terror legislation, specifically: Broadly defined sedition provisions; Preventative detention and control orders and restrictions on reporting details of such matters; Detaining suspects without charge for up to 14 days.

There's more. All are open to abuse. I know of one situation where they were applied to an alleged drug manufacturing case.

As for the Press, they are so free that not even ACMA wants to tick them off. If anything some of our broadcasters should have their license terms reviewed because broadcasters are under no pressure that they will lose their licenses.

If you refer to the News/Fairfax domination in the print media, I can understand that. They are very free to write but their freedom (at least with News Ltd) is 'governed' from the top.

Yes, I mostly refer to concentration of mainstream media ownership. I'll clarify my use of the term 'poor'. Obviously, in comparison to autocracies and dictatorships FoP is not poor, but it's fairly nebulous to do so. Last year we ranked 18th for Press Freedom, which I consider poor for a country claiming to be at the forefront of democracy.