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Homeowners across America were defaulting on loan payments and economists warned of major financial fallout occurring anywhere from Paris to Beijing to Melbourne. The world, is at risk of a virulent economic virus thanks to financial globalisation where everything is interconnected through a sophisticated form of pass the parcel. And even more alarmingly, no-one knows just how bad it might get.
"A perfect storm."
This video explains how the subprime market was created through a unique set of circumstances beginning with the fallout from September 11. The program charts the rise of easy credit to the point where mortgage brokers were running out of customers. Enter the subprime loan, the loan you could get when, as one real estate agent tells, the only criterion was to see if the client was breathing.
The video reveals how predatory lenders were unregulated and often unscrupulous, targeting people they knew couldn’t pay. The broker would make the loan, take a fat commission, and pass on the responsibility as quickly as possible. One lawyer tells: "It’s American capitalism at its worst."
"The last one out of Cleveland please turn off the lights."
A 'market correction' is a nice economic expression that goes nowhere near capturing the heartbreaking human cost of this financial disaster. This year and the next more than two million American families will lose their homes. Cleveland and Ohio where the streets are lined with empty houses, dead gardens and demolition notices pinned to the front doors. One in 20 homes are now in foreclosure. Many home owners facing eviction and the lawyers trying to save them.
"The crisis is just beginning."
US economists are warning that the worst may still be to come. They are even talking about the "R" word: recession. And one leading financial expert warns if the US slips into recession: "I don’t think anybody anywhere in the world is going to be immune. It’s a question of degree rather than whether they’re affected." (Source: http://www.abc.net.au/4corners/)
Further Reading & Resources
(1.24Mb PDF)
A paper written by Professor Steve Keen of the University of Western Sydney. Published online by the Centre for Policy Development, September 2007.
A working draft document from the Centre for Policy and Development Systems, exploring the destabilisation of global financial markets which has occurred in 2007.
August 2007 This background note provides a resource on housing interest rate movements and their impact on Australian mortgage holders. Available on the Australian Parliamentary website.
(549Kb PDF)
August 2007 From the Standing Committee on Economics, Finance and Public Administration.
(620Kb PDF)
A report from the International Monetary Fund, April 2007.
(115kb PDF)
Read the joint submission paper from the Reserve Bank Australia and the Australian Prudential Regulation Authority (APRA).
(2005)
A research paper by Dr Pelma Rajapakse, Griffith University.
FURTHER READING
'Rising defaults on US subprime mortgages - home loans to borrowers with poor credit histories – have forced dozens of lenders to close, and caused market mayhem. Will this harm the economy?' An indepth analysis of the US mortgage crisis, from the Financial Times.
A simple explanation of the financial mechanics behind the USA subprime mortgage meltdown. A working paper from Dr Sabry and Dr Schopflocher, published on NERA.com, June 2007.
A five-part series on the predatory lending/subprime crisis, by Charu Gupta and published in the Ohio Free Times:
[June 21, 2007]
Subprime Loans Can Expand The American Dream. And They Can Devastate Neighborhoods.
[June 29, 2007]
Slavic Village Combats The Effects Of Foreclosures At The Street Level While Waiting For Solutions
[July 11, 2007]
[July 25, 2007]
Many Aren't Waiting For The Federal Government To Sort Out The Foreclosure Crisis
[August 1st, 2007]
For Years, State And Federal Officials Have Been Accomplices To The Lending Industry's Excesses
LINKS: USA
Centre for Responsible LendingThe Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.
East Side Organizing Project (ESOP)ESOP creates organised leadership around issues that impact neighborhood life in Cleveland.
Housing Advocates Inc.
The Mortgage Graveyard: Failed, Struggling and Acquired Mortgage-Related Companies
New York Stock Exchange
Professor Nouriel Roubini's Blog
Professor Robert ShillerShiller is Professor of Economics at Yale University.
7 comments:
Good post, strange that people can really think that a market just goes up only. It has been long time coming this slow down.
I would hesitate to use the term 'capitalism' in the title of this post at all.
It implies free market capitalism, which is something we are in short supply of in the US of A. Much of the reason this 'meltdown' happened is due to the artificially low rates and free money pumped into the system by the fed.
Fed bailouts are essentially 'privatizing the profits and socializing the losses'.
It basically encourages all the financial vices shown in this video.
Capitalism, is like modern day communism in a way. the healthiest survive, great post, I also put your website up on my blog, www.opentopix.com/topic/business/us-mortgage-meltdown-watch-this-amazing-video ,if its too long then just go to www.opentopix.com , and click on upcomming
I think that we forget to place any blame on the consumer. People were taking out interest only loans to buy more house than they could afford hoping that the rates wouldn't go up in the next few years. Then when they went to refinance, they couldn't qualify for the payments.
Consumers have to take some of the blame as well. In the end, you are solely responsible for the payment for the loan you have taken out. Using 80% of your income to make a mortgage payment probably isn't a good idea.
Granted, the banks also made some mistakes and got too greedy with no doc and low document programs. The y pulled some strings to get borrowers approved as well.
totally crazy. And do you know, the state of California is now bankrupt as came out in news again this week.
Great post. This is a nice video.
Thanks for sharing.
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