For the first time I can remember there are some details disclosing how the government is going to handle the ‘toxic assets’ that are floating around out there.
As a refresher: Housing bubble leads to decreased housing prices. Decreased housing prices leads to increased foreclosures. Increased foreclosures lead to tightening up of the credit industry. Tightening up of the credit industry leads to decrease demand for houses (can’t get the loans). Decreased demand for houses leads to decreased housing prices.
This was the scenario six months ago that sparked this financial mess. Many people believe a ‘bail out’ of the financial industry is different than other industries if only for the fact that the above cycle needs to be stopped (plus there are negative externalities as some people are effected other then the home buyer and seller… think student loans). The original ‘bail out’ (TARP as it is now called) was originally 700 Billion dollars to combat this problem. One annoyance was that there was never any transparency to the program (no one knew what was going on).
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This article is kind of frightening because it is underscoring problems that are going to face most of the students in this class at some point. The housing market being in such a recession is really affecting interest rates and makes credentials for receiving loans very strict. Right now I have a private loan from a lender and I cannot wait until I see a major spike in the interest rate. I also have a credit card that clear out of the blue raised my apr from 6.9% to 17% because of times of economic despair. This doesn’t help anybody because surely I am going to cancel the card and never spend any money on it. But one of the most exciting things during many of the primary presidential debates was Obama made it clear that he was going to cap credit card rates. With all the other economical strife that is going on at the present moment this got pushed to the back seat. But right now the housing market is a buyers market if you have the money and our qualified housing prices are cheapest in years.
ReplyDeleteDoes this article also say that there is going to be a partnership between federal government spenders and private investors? Is this going to be the best way to approach this by using wealthy firms to help make themselves more wealthier? It is a vicious cycle right now set up to loosen the credit market. I don’t think the result would be immediate but I am lucky I get to move back with my parents in June lol scary for people who are applying for mortages though.