Greedy Banks Cause
Credit Crunch And Oil Companies Clean Up!
The headlines scream fuel
prices are up while oil companies boast huge year end profits. Livestock farmers
rant about the inflation of feed and fuel for the rise in meat prices. And banks
have experienced an increase of foreclosures. Parents
always have the hope that their children will be better off than they were growing
up and subsequently raising their own families. The truth of the moment is that
this is a utopian way of thinking. While the country is not as critical as it
was during the depression. Families and singles alike are feeling the impact of
an overall rise in the cost of surviving. One may have a hard time saying "cost
of living" because, at this point, people are just trying to make it from
week to week. At the forefront in the cause of the credit
crunch and the floundering economy was the rise in foreclosures. Lending institutions,
in 2002, offered sub prime credit. The notion of lending to prospective home buyers
with less than perfect credit created a flood of new homebuyers. With, no to low
down payments and low interest rates the market had an influx of purchasing power.
Therefore these adjustable rate mortgages allowed lower
income people the ability to buy their own home. Their idea behind this chance
may have been to build enough equity in the house to allow them to remortgage
or sell prior to the interest rate hike. The adjustable rate mortgage also enabled
low income people to improve their credit worthiness. The
reality came with a crumbling real estate market and a jump in monthly mortgage
premiums. The ARM that was once so enticing hit new homeowners with the shock
of higher monthly premiums due to their interest rates going up. No longer able
to make their monthly payments, homeowners began to either sell at a loss or banks
were forced to foreclose on the property. Finally,
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addition to home market values dropping, the recourse was an overburdened real
estate market without any buyers. Lending markets created stricter guidelines
on home purchases. The banks course of action included higher down payments and
almost perfect credit scores as well as interest rates increasing. This credit
crunch created a ripple effect throughout the country. Another
leading cause of the credit crunch is the inflated price of fuel to include gas
or diesel for autos and trucks to home heating fuel. This increase forced many
people into scaling back on their fuel consumption and find alternative ways to
offset the impact. Such measures took on the form of wood burning stoves to heat
homes and carpooling to share the expense of gasoline. Remarkably
the price of gas has nearly quadrupled from that of ten years ago! The resulting
fact is that commuters either find alternative modes of transportation or means
of getting to work. Homeowners have had to keep thermostats below normal temperatures
as not to incur outrageous heating bills. The paradox is that oil companies are
boasting of all time highs in year end profits. The combined
crunch of fuel prices and the real estate market has also spilled over into the
food industry. Livestock farmers have experienced an increase in the cost of fuel,
corn and other feed for their animals. This added expenditure has resulted in
a loss of revenue for chicken and pig farmers as well as cattle ranchers. The
only alternative for farmers is to raise the price of their product. With many
families already hurting in this credit crunch the rise in the cost for meat purchases
is going to be a sickening blow. Along with the inflated
cost of meat other groceries have garnered a rise in cost too. Having already
stretched their dollar to its limit, consumers are going to be hard pressed to
escape this financial stranglehold. These three components of the credit crunch
combined offer little optimism for the near future.
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