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Saturday, September 01, 2007

SUB-PRIME MORTGAGE WOES

The US has been hit by a major credit turmoil triggered by the sub-prime mortgage issue. What it basically means is that banks and other lending institutions have provided housing loans to citizens who, to put it bluntly, are of non-credit worthy status. These people buy houses that they simply cannot afford, paying high interest rates on top of their non-credit worthy stature. Why do banks allow these people to borrow then? Interest is the word. Greed has resulted in excessive lending and hence the credit crunch that the financial markets have been facing in recent volatile weeks. From China to Singapore, the whole of global markets felt the effects of the credit squeeze.

Early this mornig, live from the White House, President George Bush made a speech and tried to maintain law and order by announcing policies that will help borrowers retain their houses ie. their American Dream, so as to avoid losing their roofs via reposession and avoid bankruptcies. However, if one had listened carefully with regards to the refinancing issues which he mentioned, he clearly said "to credit worthy customers". So, if the sub-prime issue relates to non-credit worthy borrowers and the policies being implemented saves only the credit-worthy borrowers, what happens next? Well, simple: the rich gets richer and the poor gets poorer, full stop.

Lending institutions simply need assets and liabilities to maintain their account balances and this is one way to feed their accounting slash capitalist needs. In every situation the capitalist nature of the world we live in now seems to always favour the needs of the rich, well they control everything don't they? So why not make every little penny they can at the expense of non-credit worthy citizens rite? If only there were more Grameen Banks around, the whole world will be a less divided place... (Unlike other orthodox banks, Bangladesh's Grameen Bank started by Professor Yunus provides credit to the poor on the basis of cash flow potential and belief instead of collateral).

To a small extent I feel like I'm in the lending institution's shoes. People have the knack of being nice when they need to borrow money. They will come up with all sorts of reasons to justify the borrowing. And as soon as you put the money onto their palm, they suddenly forget their debts. Sometimes I feel like an Ah Long San. I can't help but feel wrong that someone else owes me money that is rightfully mine, and yet I am made to feel like an idiot asking for my own money back. It is fine if the borrower is of non-credit worthy status and it becomes a genuine bad debt. But it pisses me off to a certain extent that I don't get my money back but the borrower spends lavishly and forgot all about paying me back. Or maybe he intends not to pay me back. Some people just don't have the right ethics to begin with.

Okay now I understand why the sub-prime mortgage woes started. Lending institutions are nice if only the borrowers have the guts to communicate problems with regards their payment plans. Lending institutions generally do assist with genuine cases of inability to pay and make efforts to suit their borrowers requests. I've worked in the bank and I know this is true. The problem is, borrowers usually run away and hide when they face difficulties making payments and that is where the trouble begins.

¶ 9:32 AM

Posted by Wakatepebabun Kukuye