Yes……if you take a good look into your stock portfolio, you may feel like you’re rearranging the deck chairs on the Titanic! Over the past month, we’ve seen the Stock Market tumble nearly one thousand points, after the market went over the 14,000 mark, only to rebound as the Fed started to dump cash into the banks. We all know that the rush to invest into the Real Estate market was on everyone’s plate over the past few years. How could you go wrong? Real Estate prices were going up and the sky was the limit. Actually, the amount of credit and cash flow was the limit, but no one was paying particular attention. You could actually get a mortgage where you only had to pay the Interest and worry about the principle later….after all, this Real Estate boom was going nowhere but up. Wrong! In 1926, Florida experienced the nation’s first Real Estate Crash, as investors poured money into that state without believing that all good things must come to an end. All it took was a hurricane to collapse this house.
This time, it wasn’t a force of nature that brought down the Real Estate Market; it was GREED…..that right, greed by the banks, mortgage companies, lending companies and investors! We have heading towards this road for a long time, with increasing personal debt, offered generously and often by the banking industry. In a healthy economy, credit is something you earn. As your credit improves, so do the opportunities to borrow, if you choose to do so. What we’ve seen is a deluge of credit offers by every bank in the country, chasing after you and enticing you to take out one more credit card. With this accomplished, the next move was to take advantage of the low Prime Rate and offer new mortgages, as well as coming up with more inventive ways to part you from your money, such as Sub Prime mortgages, Interest Only mortgages, Flexible Rate mortgages and the worst: offering you an inflated credit like that went well over your ability to pay, if The Economy even flickered! On top of that, the banking industry now sold those mortgages to investors for profit. That is a dangerous recipe that we’re now seeing cooked!
The results are foreclosures the likes we haven’t seen since the Great Depression. We’re facing over 2 million foreclosures and counting. There could be more! What’s worse is that those foreclosures also may mean default on credit card debt. If you can’t pay for your house, you can’t pay other bills. If you’re among those Americans who can just get by on their mortgage payments, then you may not be able to pay those credit card payments, or just make the minimum payment. That means that you are not going to be able to make more purchases, which this growing Economy depends on! If people don’t buy, this Economy will run into a brick wall! I don’t have to tell what happens next….you don’t want to hear it!
Who’s at fault here? Certainly the banks and mortgage companies are, as they enticed home buyers into dangerous mortgages and maxed out their credit line, so they could only pay that mortgage at that moment……not if the Prime increased. So is the Government, by changing the fundamental rules of bankruptcy, just at the time when it was need most, allowing credit card companies to increase the Minimum Payment and keeping the Prime Rate low to keep the Market growing. The third culprit is you, the American consumer! You bought into this trap by thinking that you could buy the “American Dream” now and pay later! You’re just as responsible as the banks or the government, except you’re the victims! You were told that everything was going to get better and only good times were ahead….but you believed it! Well, get ready for the ride of your life. The Fed may have released funds for the bans and lending companies and the Bush Administration may have offered to help “qualified homeowners,” but this just a couple of band aids on a probable mortal wound!