Don't Ruin Your Credit With A Foreclosure!
THE ECONOMIC CRISIS
(In a nut shell)
Now, how did we get into this economic crisis? Well, it was a long and winding road that began in 2001. To get a better idea, check out this chronology of the US economic crisis provided by the Denver Post (May 11, 2008).
POP!
The last U.S. Recession lasted from March 2001 to November 2001, according to the National Bureau of Economic Research. It was caused primarily by the bursting of the Internet and stock market bubbles, and 9/11.
ROADWORK AHEAD
Afterward, the economy remained a long and bumpy road, but it was soon paved with borrowed money.
BUY CHINA
Americans had been purchasing cheap Chinese good for many years.
T-BILLS
China had built up huge surpluses of dollars. China had few places to invest its dollars, but the U.S. So it purchased billions and billions in U.S. Treasury bills. This flood of dollars from China and other foreign investors into the U.S. Treasury became widely available to banks and Wall Street investment firms.
EASY MONEY
These banks and firms loaned the money to home buyers, driving up real estate price, which in turn justified even more lending.
MONEY BAIT
Wall Street developed new ways to bundle these mortgages into securities, which were then sold to investors around the world. This meant that the investors who bought the bundles were on the hook for defaulted loans, not the lenders themselves. The lenders just took fees for making loans and building securities.
EASY MONEY
Lending standards became really loose. Sub prime loans – or loans to people with risky credit histories – expanded exponentially. Credit was easy. People took out mortgages on their homes and bought even more cheap Chinese goods, exacerbating this cycle…until many of them found themselves buried in debt. And they began to default on their loans en masse, spawning a nasty wave of foreclosures.
CREDIT CRUNCH
Banks and Wall Street firms were’t able to sell all of their subprime loans and began to suffer multibillion-dollar losses that continue to be reported today. When the banks are tight, everyone is tight. Businesses across American began struggling to raise capital as the credit crunch squeezed on.
BELLY UP
The Federal Reserve Bank decided to cushion the blow as one the nation’s largest investment banks, Bear Stearns, imploded. The Fed also began making unprecedented billions in emergency loans to Wall Street investment banks to avert a complete financial meltdown on par with the 1930s.
A WEAK DOLLAR
The Fed also lowered interest rates to help borrowers and stimulate the economy. This, however, also weakened the U.S. dollar. As the dollar weakened, and many had already lost faith in financial institutions, investors fled to commodities. This bid up the price of oil, gold, food, health care, education…almost everything.
CLOSING SHOP
These higher costs put even more pressure on businesses and consumers. Retailers have begun closing stores and filing for bankruptcy. And as businesses close, consumers lose their jobs and slow spending even more.
LOOKING FOR LIFE RAFTS
What began as a financial bubble has now likely evolved into a consumer-led recession.
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