The ongoing and worsening Credit Crisis continues at a rapidly escalating downward spiraling pace. The various bailout programs offered by governments and Central Banks worldwide have done absolutely nothing to help the everyday citizen on the street.
These bailout programs have only worsened the financial crisis worldwide, and have adversely impacted our once capitalistic ways of life by having more and more centralized government control over our various major industries such as the automobile, airline, and health “care” industries as well as the last remaining firms on Wall Street.
Fannie Mae & Freddic Mac
Most obviously, the banking and mortgage market systems have been dramatically impacted by the nationalizing of both Fannie Mae and Freddie Mac which purchase most residential mortgages nationwide. FHA continues to represent a larger percentage of the national mortgage market although the FHA insurance system (and SBA) themselves are close to being technically insolvent sadly.
The first major financial meltdown of this century was probably the 2000 Nasdaq meltdown. Do you remember when the Nasdaq index hit near 5,000 in March of 2000 just prior to the High Tech Bust? This was followed shortly thereafter by the Telecommunications Meltdown (i.e. Global Crossing, etc.). Few people may remember that the Telecommunications meltdown was actually a bigger financial disaster than the High Tech meltdown as the stock and bond losses were staggering.
The official start of the latest financial crisis officially called “The Credit Crisis” began back in August of 2007. However, major sub-prime lenders such as New Century Mortgage (based in Irvine, CA) and others were shutting down well before this official starting date. This mortgage collapse was also followed by a collapsing structured debt product meltdown.
Banks Are They Safe?
As I have been saying and writing for years, the largest banks in America are all technically insolvent primarily due to their off balance sheet derivatives investments (Credit Default Swaps, etc.) which they seem to “forget” to calculate in their earnings reports each quarter. Sadly, their current losses may far exceed the entire value of their respective financial institutions (cash, stock value, interest income, etc.). Local credit unions and community banks may be a much safer place to put your money than in the largest banks nationwide.
The Credit Crisis, again, is primarily all about the unwinding of the derivatives markets worldwide which may include structured investment or debt instruments such as Credit Default Swaps (a glorified form of a bet which may be hedged or insured by a third party which is probably a shell entity based in the Caribbean as many of these “insurance companies” actually were shown to be in the past), Collaterized Debt Obligations (or Mortgage Backed Securities pools – a package of real estate mortgages in the hundreds of millions of dollars), Structured Investment Vehicles, or other complicated financial entities which are really only understood by a few Ivy League MBAs.
Real Estate Investing Opportunities on Rise
Out of chaos though, comes opportunity. When banks or motivated sellers need to liquidate their homes, commercial properties, or other assets as quickly as possible, then there may be some exceptional buying opportunities for investors who are willing to spend the time searching for these deals today.