by BlondieWrites on November 12, 2009
There are several factors that have caused the current economic crisis. At its very core, the sub-prime mortgage crisis was the catalyst.
To give you a brief history of how the sub-prime mortgage crisis began, let’s first explore what a sub-prime mortgage is. It is an adjustable rate loan that was offered to individuals who had bad credit. The brokers who engaged in offering these mortgages received commissions on every sale, and thus the need to entice and cajole buyers into purchasing homes (whether they could afford them or not) was the basis of their sales pitch.
During the housing boom, these predatory lenders sold homes to individuals without checking their FICO scores and subsequently offered homebuyers interest rates that were so low that they were, in one word, “irresistible”.
Unbeknownst to the buyers, however, within a short period of time the interest rates increased and some homeowners were forced to apply for equity loans as a result. However, what transpired thereafter was that the lenders then sold the mortgages to investors here and abroad. As a result, the interest rates on the mortgages increased to a point that the homeowners could not meet the mortgage payments. Foreclosures then ensued, prices of existing homes declined, and the housing market virtually collapsed.
According to foreclosuredataonline.com, the serious sub-prime mortgage crisis began in June of 2007 when two Bear Stearns hedge funds collapsed. This had a rapid effect on other parts of the financial markets worldwide, which reached the crisis level in August-September of this year and temporarily froze the money market sector that is critically important to banking and financial operations.
As sub-prime mortgages began to reset in droves and result in foreclosures, housing prices also declined. Because of the way these loans and CDOs (Collateralized Debt Obligations) were globally distributed, it knocked the whole system out of whack. Keep in mind that a single CDO package might contain as many as 100 sub-prime mortgage loans. As the defaults continued, the worldwide CDOs took a major hit and the entire thing went down like a house of cards.
Paul Krugman, economist and Nobel Prize winner noted that the innovations of recent years — the alphabet soup of CDOs and SIVs (Structured Investment Vehicle), RMBS (Residential Mortgage-Backed Security), and ABCP (Asset-Backed Commercial Paper) were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.
Popularity: 1% [?]
by BlondieWrites on November 12, 2009
In its simplest terms, a recession occurs when there are “two consecutive quarters” of negative growth.
While most economists have been fickle in utilizing the term, it is nonetheless clear that our economy is in the throes of a recession. More importantly, however, is the fear that the recession will subsequently turn into a depression.
How does a recession occur? Well, when there is not enough supply to meet a specific demand (as in the case of oil), prices rise and spending becomes stagnant. This, in turn, causes companies to decrease expansion. No expansion means a decline in the work force and, consequently, unemployment rises. Consumer confidence dissipates, prices of homes decline, and everyone becomes affected.
It can also be suggested that the sub-prime mortgage crisis had a direct impact on the current recession. One can use the dot.com analogy to preface the seriousness of our current crisis. Remember when the stock prices for the internet industry increased beyond anyone’s imagination? Most people were buying these stocks because they felt the return on their investment would be phenomenal. It was - for a time, until the market turned sour on internet stocks and over five trillion dollars was lost, thus inviting a recession that affected companies worldwide.
Similar to the brokerage houses that were making money hand over fist today, the only people who profited from the internet stocks were the CEOs of these companies. Shareholders and everyone else were the losers.
Recently, economists have ascertained that the market will have five negative quarters. Others have stressed the importance of having on hand at least 18 months’ worth of savings. Still others, concerned about the Rescue Plan’s execution, are worried that we may be headed for a depression.
Obviously, not everyone agrees as to what will eventually occur. They do agree, however, that until the banks’ lending ability is alleviated, the stock market’s volatility will continue.
This global Rescue Plan was designed to give banks enough money so that they were not tied down by these toxic mortgages that prevented them from lending to one another. This is also why it is currently very difficult for an individual to obtain a car loan, college tuition loan, or other type of loan from banks.
Unless and until this plan begins to have a significant effect on the global economy, thus thwarting a total collapse of our lending institutions, this recession will continue. In other words, we are faced with economic uncertainty and must do what we can to ensure we are prepared for any eventuality.
Popularity: 1% [?]
by BlondieWrites on September 15, 2009
The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income and Grow Wealthy Even in the Worst of Times
The Ultimate Depression Survival Guide is a book about surviving the economical crisis with a personal and financial plan. Having a plan and being prepared is half the battle. The author, Martin Weiss, is the editor of the Safe Money Report. He is a financial market analyst with over 30 years of experience who advocates safe investing. He is also the author of Crash Profits.
His book is a step-by-step guide to create a sound financial plan for the future. It offers solutions to today’s unpredictable financial markets and investments. Martin Weiss talks about the challenges ahead and how to overcome them. He provides in-depth advice on how to cope with the housing market decline, the sinking US Dollar and the credit crunch. He also shows you how to take advantage of today’s financial crisis and build your wealth and nest egg, how to deal with the fluctuations in stocks, how to cut your losses in real estate and how to invest safely.
The book also features topics that today’s successful investors should be familiar with, including global investing, commodities and foreign currencies. He also talks about how to gain wealth by buying assets at low prices.
The Ultimate Depression Survival Guide is a book full of advice for today’s investors, not only to survive the economic downturn, but to profit from it.
Popularity: 2% [?]
by BlondieWrites on September 6, 2009
When our financial picture is good, we often do not worry about saving money. But when things take a turn for the worse, we realize the error of our ways. Had we found ways to spend less and save more, we might not have to worry so much.
When faced with reduced income and/or rising prices, saving money is not optional. It’s something we must do to survive. But if you’ve never pinched pennies before, it’s easier said than done. Here are five ways you can save money when times are tough.
1. Shop around. Comparing prices on groceries, clothing and other tangibles is a good place to start. But you can also save a substantial amount of money by comparing prices on such things as insurance, phone service and internet access. Call around or check prices online to find the best deals.
2. Clip those coupons. Some people shudder at the thought of using coupons, or they feel that they don’t make much of a difference. But those cents (and sometimes dollars) off can really add up over time. And coupons aren’t just for groceries any more. You can find them for everything from dinners at your favorite restaurant to movie rentals.
3. Don’t buy when you can borrow. If the outside of your house needs cleaning, your first thought might be to go out and buy a pressure washer. But if your neighbor has one, he might be willing to loan it to you, saving you a big chunk of change. If you’re willing to loan stuff to others, they will often be happy to return the favor, saving you both money.
4. Cut your transportation expenses. If possible, using public transportation is usually the cheapest way to get from Point A to Point B. If that’s not an option, carpooling is the next best thing. Taking turns driving to work with a co-worker will be of benefit to both of you. And there’s no reason to stop there. Share rides to the store with neighbors, take turns with a fellow soccer mom driving the kids to practice, and take one vehicle when going out to eat with friends instead of driving separately.
5. Be self-sufficient. Anything you can create at home will almost certainly be cheaper than the same thing bought from a store. So try your hand at sewing your own clothing. Learn to bake bread from scratch. Plant a garden and learn how to preserve the surplus for later use. You’ll certainly save money, and you might find an enjoyable new hobby.
Saving money isn’t completely effortless, but it’s not as hard as you might think. Some simple changes in lifestyle can leave us with more money each month. During hard times, saving money can help keep us afloat. And when our situation improves, it can help us save up money for emergencies, retirement and other important causes.
Popularity: 4% [?]
by BlondieWrites on August 27, 2009
Experiencing a drop in income can send us into a panic and our budgets into a tailspin. Unfortunately, it can happen to just about anyone. You or your spouse could be laid off, work could dry up if you’re self-employed, or you or someone in your household could fall ill. Times like these call for drastic money-saving measures.
If you have adequate savings, you will be able to live off of that for a few months. But whether you have an emergency fund or not, spending as little as possible is the key to making it through such tough times. You often don’t know how long your income will be reduced, so it’s crucial to stretch the money you have as far as possible. Here are some ways to do that:
1. Take a look at your bills and see what can be eliminated. Things like housing and electricity are hardly optional, but there are other things you may be able to live without for a while. Possible candidates include cable or satellite service, cell phones, long-distance plans, Internet access and gym memberships. Unless there is a pressing need for these things, consider getting rid of them until things are better.
2. If you or your partner is still working, make sure that you’ve claimed as many exemptions as you qualify for on your tax withholding. You won’t get as large a refund as you would with fewer exemptions, but you will have more take-home pay out of each paycheck.
3. Cut your phone bill down to a bare minimum. It’s a good idea to have a phone in case of emergencies, but we often have lots of extra features that we could live without. So cancel the call waiting, call forwarding and other such features, and get the cheapest possible long-distance plan (if you really need long distance).
4. Conserve electricity. Turn down the thermostat and wear more clothes when it’s cold out. Turn the lights off when you leave a room, and don’t leave the computer or television on when they’re not in use. These measures may not seem to matter much, but when used in conjunction with each other, they can knock a noticeable amount off of your bill each month.
5. Spend as little as possible on groceries. Coupons are good, but they don’t always save you more money than buying a cheaper brand. Try to combine coupons with sales for maximum savings, and don’t be afraid to buy store brands. They’re usually just as good as the big names.
6. Avoid eating takeout, and cook meals from scratch as much as possible. It takes more time than preparing convenience foods, but it can save you a great deal of money. If you’re short on time, cook large batches when you have a chance and freeze the leftovers to eat later.
7. Get help if you need it. Food pantries, thrift shops, churches and other organizations make it their mission to help those in need. If you truly can’t afford necessities, swallow your pride and ask for help. You can always repay the good deed by making a donation when you’re able.
When you’re dealing with reduced income, it’s easy to feel hopelessness. But there are ways you can stretch your limited funds further. By cutting out all but the essential expenses, you increase your chances of making it through your financial crisis until you find a way to replace your lost income.
Popularity: 1% [?]
by BlondieWrites on January 12, 2009
During this difficult economic downturn, there are several ways you can ensure your money is safe. Here are five tips you may like consider:
1. Since the FDIC has increased its insurance amount from $100,000 to $250,000, it may be a good idea to check with your bank to ensure your deposits are covered. And for those of you who have money in banks that have either merged or have been taken over by the government, note that they have specifically indicated that they will continue with the same practices and would notify you of any change.
2. Now is a good time to sit down with your family and tweak your household budget if you have one, or plan a family budget if you do not. Obviously, you will want to ensure that you do not incur additional debt, and you may therefore wish to take measures to decrease the amount of money you allocate to each specific item.
3. Begin calling your credit card companies and telephone company to reduce interest rates with the former, and decrease specific items you do not really need with the latter. This could include items such as call waiting, caller ID, unlisted numbers and so on. If you have a landline phone at home and find you are using your cell phone more often than not, you may wish to cancel your landline service - or at the very least, suspend the service for six months.
4. If you have money saved and wish to compound the interest rate, it may be a good idea to transfer monies from your savings account to a CD. Check several banks to determine how much interest rate they are offering and choose the best one. Keep in mind, your CD is also protected by the FDIC.
5. Keep contributing to your 401K plan. Even though you may have suffered a loss, the fund will continue to grow as your 401K provider will be able to purchase stocks, bonds, and mutual funds at a very low rate. This will serve you well later on when the market rebounds.
Finally, remember that everyone is affected by this economic crisis. Don’t panic! Don’t rush out to your bank and withdraw your money. And if you have stocks, now is not the time to sell. The market will get better as time goes on.
Also, in light of the increasing number of job losses, you may want to put aside enough money to cover you for the next 18 months or so. Although economists predict the stock market will be volatile for the next five quarters, it may take a while for the rescue plan to take effect as the world banks are working hard to alleviate the economic problems by infusing money into banks.
Now is the time to watch every penny spent and make necessary adjustments to your lifestyle and household budgets as well.
Popularity: 39% [?]
by BlondieWrites on January 1, 2009
Get Your Free Guide to Pay Debt Quickly Here
If you’ve struggled with debt for any amount of time, you know how it can feel like you’re in a big black hole, you just can’t seem to dig yourself out of. Balances never seem to go down and you need to keep tapping into credit cards just to make ends meet.
There is plenty of debt advice out there and you may have tried things like debt consolidation, making large payments to your debts to try to pay them faster and other methods that just don’t seem to work. Things just keep getting more and more difficult to manage.
But it really doesn’t have to be that way…
If you’ve been able to keep up with your minimum monthly payments until now, there is a solution for you. And it’s remarkably simple if you follow the appropriate steps laid out for you.
I’m talking about the “Pay Debt Quickly Kit” that shows you how to:
- Pay debt off faster without having to make any large payments.
- Get what you want from your creditors to pay off your debt faster and even improve your credit score.
- Make drastic changes in the way you think about and handle money without feeling like you’re deprived in any way.
The kit includes everything you need to get to debt-free faster. From software that helps you quickly and easily calculate your precise debt-free dates to strategies to take control of your finances and even work with your creditors so that you benefit, instead of them – this kit has what you need to eliminate your debt.
Learn more and get debt-free at: Pay Debt Quickly
Everything is available for instant download and you don’t have to wait for anything to come in the mail. That means you can start sleeping better and stop worrying about your debt, starting RIGHT NOW.
Popularity: 50% [?]
by BlondieWrites on January 1, 2009
According to an article written in USA Today by Noelle Knox two years ago, “Almost 280,000 Americans lost their homes through foreclosure last year. But that’s not the surprising part. This is: Half of them never even talked to their lenders.”
Today, the amount of foreclosures has increased by 79%. This is an astounding number, and fears that it may increase even further are widespread. As early as March of this year, Bloomberg.com stated that as many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional sub-prime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor.
If you have fallen behind on your mortgage payments or cannot pay at all, here are some suggestions.
* Call your bank or lender immediately advising them your payment will be late.
* If you can refinance, now is the time to do so.
* Contact a financial planner to assist you.
* Check out a reverse mortgage.
Keep in mind that the last thing a bank wants to do is to foreclose on your home. With the sub-prime mortgage crisis causing this mess, banks can ill afford to take in additional bad mortgages. Talk with them to ascertain if you can arrange a payment schedule, reduce the interest on the loan, or renegotiate the terms.
According to Ms. Knox, banks may be willing to engage in the following:
* Refinance - Allows the homeowner to refinance the current loan into a new loan. For example, you could refinance from an ARM into a fixed-rate loan.
* Repayment plans - Long-term “catch up” plans that allow homeowners who have fallen behind to pay more per month on their mortgage, gradually bringing their loan up to date.
* Loan modification/restructure - Agreement to change the interest rate or other terms of the loan.
* Forbearance - To postpone the interest or payments on the loan for a fixed period of time.
* Quick sale - Allows the borrower to sell the property for less than the loan, and consider the loan paid in full.
The fear of defaulting on a mortgage has most homeowners in a state of angst. However, you can delay the worst possible scenario by utilizing the suggestions made by Ms. Knox.
If you find that you may fall short in paying your mortgage, contact your bank or lender as soon as possible to discuss your concerns. There’s a good chance that you and the bank will be able to find common ground that is satisfactory to you both.
Popularity: 33% [?]
by BlondieWrites on January 1, 2009
With the current economic crisis on everyone’s mind, you may be wondering if you should withdraw money from your 401K. Experts recommend that you do not. They advise that contributions should continue based on the “buy low-sell high” theory.
What does this mean for you? Simply stated, right now most individuals may have incurred a severe loss in their 401K plans. But, considering that the stock market has dropped approximately 5000 points since the economic decline, your portfolio will no doubt increase with stocks, bonds, and mutual funds that can now be purchased at a very low rate.
If you withdraw funds from your 401K, the cumulative effect will result in your taking a double loss. First, by paying a penalty for early withdrawal - and second, by decreasing the amount of purchasing power you would have as a result of the stocks tumbling to their lowest rates.
You may withdraw funds from your 401K at age 59½. If you withdraw beforehand, however, you will incur a 10% penalty and pay tax on the amount distributed.
You do have another option. Since most economists believe we are headed for a recession, you can roll over your 401K into a Roth IRA or traditional IRA. If you decide to do so, here is some advice from the IRS:
Rollovers from your 401(k) plan. A rollover occurs when you receive a distribution of cash or other assets from one qualified retirement plan and contribute all or part of the distribution within 60 days to another qualified retirement plan or traditional IRA. This transaction is not taxable but it is reportable on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. and your federal tax return. You can roll over most distributions except for:
* A distribution that is one of a series of payments based on life expectancy or paid over a period of ten years or more
* A required minimum distribution
* A corrective distribution
* A hardship distribution
* Dividends on employer securities
Any taxable amount that is not rolled over must be included in income in the year you receive it. If the distribution is paid to you, you have 60 days from the date you receive it to roll it over. Any taxable distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll the distribution over later. If the distribution is rolled over, and you want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your 401(k) plan transfer a distribution directly to another eligible plan or to an IRA. Under this option, no taxes are withheld.
You may borrow up to 50% of your vested account balance up to a maximum of $50,000. The loan must be repaid within 5 years, unless the loan is used to buy your main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.
However, if you cannot afford to pay back the loan, it is considered a distribution if you default on three consecutive payments and the funds withdrawn will be taxed.
Popularity: 33% [?]
by BlondieWrites on January 1, 2009
There are two schools of thought on this question: Some economists suggest now is the perfect time to invest in the stock market, while others claim you should sell all your stocks and run for the hills.
Perhaps both are correct! As the situation stands now, stock market analysts are waiting for the dreaded bottom to fall out from the market. They thought it would happen on Oct. 24th, but it didn’t.
While most experts are now saying we are in a “global recession”, if the foreclosure rate continues, we may hit bottom sooner than later. So what should you do?
First, don’t make decisions based on fear or panic. Think about the long-term effect. If the old mantra of “buying low and selling high” is true, then you may wish to wait until the stock market falls even further.
Analysts say there are many bargains out there, and now is the time to take advantage of them. However, we do not yet know the full effects of the recession and how it will play out nationally and globally, so you may want to wait awhile to ascertain if it is worth it to even venture out into the “path not taken”.
Warren Buffet has an entirely different view. He feels now is the best time to invest in the stock market and he put his money where his mouth is by investing $5 billion dollars in Goldman Saks. Of course, he can afford to take this risk. Those of us who live from paycheck to paycheck cannot.
Quite frankly, if you asked ten analysts and economists what they thought about investing now, you would receive ten different answers.
If you have never invested in the stock market before, you will need to spend quite a bit of time researching companies, profits, and other variables. You may even wish to tune in to Jim Cramer. Recently, he told his followers to sell all their stocks!
If you are an investor, you may have a pretty good idea of when to hold and when to fold. All of this requires prudent and thoughtful consideration to what is happening around the world. It is difficult to feel confidence in the stock market with foreclosures and unemployment on the rise, banks closing their doors, corporations dismissing thousands of people, cost of living higher than ever, and the prospect that OPEC will decrease oil distribution by 15 million barrels.
Perhaps this is a time when we start investing in ourselves by budgeting wisely, seeking promotions, applying for second jobs, or opening a home-based business. There is enough stress already, financially and emotionally - why add more?
Popularity: 23% [?]
