Sunday, December 23, 2007

Now It's Credit Cards

Now It's Credit Cards.Please read yahoo article if interested.

The Subprime ripple continues through the free world. However, this time the next wave is credit cards. The subprime collapse and its vicious cycle of creating ever more collapses unless the federal government step in is looking more and more like the Savings and Loan Collapse where all Savings and Loans went out of business because of bad defaulted loans to third world countries, especially to Mexico and South America. This time the culprit is greedy Loan advisors who steered people to loans they did not fully understand. Though, to be fair I don't even think most Loan advisors and counselor and loan officers had enough knowledge about economics to ever expect something resembling what has happened and what will continue to happen unless the Federal Government steps up to the plate and stops the unraveling of the free world's national economies. Each country now has to do its part to figure out how to handle this situation because unlike the Savings and Loan situation that affected mainly Americans who lost all their savings in the Savings and Loan debacle this affects the whole free world investment structure. Banks in England and France and Switzerland and I think even Germany have already had problems because of this worldwide mortgage investment problem because of subprime loans in the United States. Especially loans in California will be problematic because housing values are up to double what they are in most of the United States. Stockton, for example has dropped on average 30 percent or more per house there and I believe it is Punta Gorda in Florida that has dropped in value per house 35 percent. So, for those of you around the world, if you had a subprime loan and got it on no money down and your payments doubled to more than you make per month let me ask you this wouldn't you default that loan? Think about it! Even if you had perfect credit and could afford the loan if your house was worth 35% less than you paid for it you might step out on that loan as well.

The other problem is that defaulted empty houses create crime and drug houses next door to law abiding citizens. Since the law abiding citizens left there don't want to be killed they might step out on their loans as well. So you see the vicious cycle in action. Defaulting drops the price of the houses, and makes it dangerous for those who still live there and drops the value of their houses to the point where they might have no reason at all to stay if they want to live and be safe and make sure their children aren't mugged or raped.

The only real way to stop this is to somehow stop this artificial loss of value of every house in any given area. This is the only way to stop the ghost towns springing up all across the United States from this debacle.

To make matters worse, the defaulting homeowners coming on to the rental market is starting to drive the rents up so hight that many people can no longer afford their rents and are going homeless as a result. This is creating "Grapes of Wrath" scenarios all across the United States of relatively uneducated people who are living from paycheck to pay check.

Now, it is also starting to take a toll on credit cards as people who own homes lose them, and the people who they bought furniture from lose a customer because they no longer live there. Also, all the people who build homes are out of a job. (This is not completely true because some people who are building homes for wealthy people still have jobs)

So, the end result is that millions of people are either losing their jobs or the companies they work for are losing millions in business from all the people that aren't buying homes, furniture, appliances, and are not building houses.

Now, it is also affecting credit cards of all the people that can no longer make enough money by any means to pay their credit cards after losing their homes, and being forced into bankruptcy. Personally, I have never seen anything like this since I have been alive since 1948. The closest thing I have seen like this was the Savings and Loan Debacle and now I'm begining to have to reach back to the memories of my parents and grandparents for any sanity regarding all this.

The way people survive all this during the great depression was to make sure they had a good trade that people needed. Salespeople will always be needed, Plumbers, electricians, Carpenters, farmers etc. Will ALWAYS BE NEEDED. So this is something to think about. During the great depression millions of white collar workers and unskilled workers had no food to eat and no money to live.

One way to handle what is coming is to recreate the WPA (FDR) with national work projects so people can build roads and create infrastructure that is failing nationwide at this time so they can still earn money to live and not starve. (For example, the bridge that collapsed would be one of these projects.

Credit cards will also be a problem because most credit card debt cannot be forgiven even if one goes bankrupt. So, if you go bankrupt likely a Chapter 13 might be the most useful if you want to keep your home and car at this time. Credit Cards and
student loans are very problematic if you go bankrupt. I talked to one person I know and until they were in bankruptcy their student loans quadrupled over 2 years because no payments were made. Then by going bankrupt it at least stopped the interest from accruing against her.

So, just when one is going through the most hell in losing their house they are attacked by the credit card companies who attach their paychecks which often throws them onto the streets and ends a useful life for them. So, if this is happening to you be sure to be smart about how you handle these problems.

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