All bubbles will burst, what goes up must come down, what goes around comes around. Well these words seems to perfectly describe whats happening at the world stock market today. I always have the interest and curiosity on this subject but do not have the brain, guts and money to put my nose into it. Well, i guess thats for the better as billions are lost in the stock market as we speak (blog). Decided to divert a little bit from golf talk to a bit more serious topic for my own benefit and who knows might be for the benefit of the readers too.
It all started in 2004 when US govt decided to increase its interest rate from 1% in 2004 to 5.25% in 2006. This increase has a severe impact on the lenders particularly the low income earners. At the same time the US financial market earned a big business from the so called sub prime mortgage. This basically means that any individual with a low/no income, poor credit ratings who owns a decent size home can make huge loans with the bank to pay off other loans or buy BMWs, sporty cars or live a luxurious life. The idea behind this business is that the houses in US will forever increase in value and bank basically has no risk in giving out loans provided that it is being backed up their customer houses. Well..as the macro economic theory goes..high interest rate, decrease borrowing, decrease investment, decrease value of asset. All of a sudden, the low income earners realized that they do not have enough money to pay the bank and the assets held by the bank as collateral is valued much lower than the amount that they have lended to the customers. CRASH BOOM BANG! A piece of advice you might want to reconsider your options of buying a house in UK or in US for now : ),
It all started in 2004 when US govt decided to increase its interest rate from 1% in 2004 to 5.25% in 2006. This increase has a severe impact on the lenders particularly the low income earners. At the same time the US financial market earned a big business from the so called sub prime mortgage. This basically means that any individual with a low/no income, poor credit ratings who owns a decent size home can make huge loans with the bank to pay off other loans or buy BMWs, sporty cars or live a luxurious life. The idea behind this business is that the houses in US will forever increase in value and bank basically has no risk in giving out loans provided that it is being backed up their customer houses. Well..as the macro economic theory goes..high interest rate, decrease borrowing, decrease investment, decrease value of asset. All of a sudden, the low income earners realized that they do not have enough money to pay the bank and the assets held by the bank as collateral is valued much lower than the amount that they have lended to the customers. CRASH BOOM BANG! A piece of advice you might want to reconsider your options of buying a house in UK or in US for now : ),
No comments:
Post a Comment