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Friday, September 21, 2007

US Sub-prime Mortgage Crunch!

We were hearing a lot about this. The sub-prime credit crunch in US causes recession in US economy (they say that its a 'global' recession).

I was just after it... just to know what really is it.

few reflections: I got the definition for sub-prime credit from Wiki. It goes like this:

Sub-prime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.

Which means they were lending money to people who were not supposed to get it.

What does that mean? Banks had to lend money to keep the business moving. Thay had already squeezed the elite class (those had money). So they started to sell it to sub-prime class.

Now they are telling that those loans were too risky and not being paid back. In the discussion forum in BBC, a mortgage lender was saying that most of the sub-prime clients were fake! (like, show some building just to get the loan and abandon it and do not pay for it)

So now all the blame goes to the 'sub-prime' clients! The so-called poor in the society. They create the crisis! They are the thief!

It the irony. Every were the poor and weak suffer and accused for all the trouble.

BIG QUESTION is, is that those poor sub-prime clients the real culprits?

I don't think so. The answers would lie between the lines rather than on the line: sub-prime credit crunch.

What I think is this: the US economy was experiencing a kind of vacuum because of their vast spendings - the very principle of consumerism. They spend spend and spend. But the spending was backed by CREDIT rather than what they actually had. (The life and work of most of the Americans are already pledged to these mortgage/credit banks for years to come, as we all know). Further the wars in Iraq and Afghanistan also must have squeezed US reserves.

What US govt could do was just print print and print dollars. But in order to support that (support the value of money) they wanted more and more economic activity (demand for dollar. without demand no value! basic demand and supply theory). The govt along with the architects of war and US had carefully lured the 'sub-prime' clients to catch this bait. The so called poor, they caught the bait, most probably for inflated value for a piece of land or housing on a high interest rate.

But this cannot go on for ever. Now all on a sudden the market forces (which was much anticipated) realizes that the value of their assets are overestimated and to be 'adjusted'. US dollar weakens, the value of their assets gone, but the credit and the high interest rate remain the same!

Now, either the 'sub-prime' clients have to work their ass out to repay the loans or be branded as 'thiefs'.

I think, its all a new form of slavery!