Sub-Prime Crisis Leading to Recession
By Kurt O'Keefe, Attorney at Law on Dec 25, 2007 in Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Michigan
I hate to sound like a broken record, especially at holiday time, but, those with more expertise than I are voicing the same opinion, the sub-prime mortgage crisis has started the dominoes falling toward recession, which always brings more bankruptcies.
The sub-prime mortgage crisis has spread, throughout the world financial system.
The Federal Reserve Board, European Central Bank, and other government entities have misread and mismanaged the situation from the start. As the sub-prime defaults built up to the point last summer that the securities they backed started to tank, the talking heads on CNBC et. al. simply stated how small a percentage of the market sub-prime constituted, how it was only a tiny part of the giant U. S. economy, did not effect the rest of the world, et cetera. Now “Helicopter Ben” is tossing dollars out the window, backed by the same shoddy mortgage securities whose crash in value brought about the crisis.
The linked to article explains how this has spread throughout the monetary system, that lending has dried up, and that pumping up the money supply is not the answer.
Lending standards were too loose, no standards at all were discernible in the mortgage market, as the bubble built up.
As the bubble bursts, the banks realize there is no way to separate good mortgage debt from bad, so the markets regard all of it as unsafe.
There is no easy way out. Without lending, there is little new investment that produces jobs. If credit lines are not rolled over, notes are called in, assets are sold, the market for those assets is depressed by increasing supply, and the downhill snowball grows and grows.
The fallout? Job losses and zooming bankruptcy filings.
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