Cheap Credit Caused the Crunch

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Consumers and Investors can measure the current economic problems by counting the number of times they hear the term “credit crunch.”

We are being told that it is very difficult to get a big mortgage, that deals are falling through, that innocent home buyers are in a sorry state.  A big bank has raised its rate on jumbo mortgages from 6.8% to 8.0%.  Lenders are demanding documentation of borrowers’ income and assets.  What’s next?  A 10% down payment?  Mortgage insurance?

For several years now, people have been buying homes, no-money-down, on the supposition that high prices would go higher.  Some folks even bought several homes, planning to sell the extra ones when prices went higher.  Now the age-old question is heard:  “Sell to whom?”

This is the market that Bear Stearns’ (a major investment company on Wall Street) chief financial officer calls the worst he’s seen in 22 years.  This time period spans all the other credit and stock market disasters in recent history – and here they are:

  • the market meltdown of 1987
  • the savings and loan collapse of 1989
  • the Gulf War market of 1991
  • the Orange County bankruptcy of 1994
  • the Asian Contagion of 1998
  • the demise of Long-Term Capital Management of 1998
  • the post Sept. 11 market of 2001
  • and , the Enron-Tyco-WorldCom accounting scandals of 2001-2002

 Good Luck!

One Response

  1. Excellent Point Moneybob — I totally agree!

    South Florida Real Estate Investor
    http://richurban.wordpress.com

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