Sub-prime crisis may trigger global meltdown

lit bomb

Moody’s chief economist said if there are more hedge fund blowups like at Bear Stearns, the effects on global financial markets will be severe.

He said economic modelling showed that sub-prime mortgage delinquencies would peak in mid-2008 and remain close to the peak well in to 2009.

The reason I keep banging on this theme is because it affects us all. Credit is already getting harder to obtain. Interest rates will continue rising. One of the driving forces in the US economy has been consumer money coming from home equity lines of credit, a source that has now dried up. That means stores will have declines in sales which in turn means job reductions. Fred at Home Depot gets laid off even though he might not even know what subprime mortgages are, making him an innocent victim of a seemingly arcane financial implosion.

Bizarrely, some leftists get almost happy about this kind of thing. Such a crisis of capitalism will surely signal the collapse of the system, they hope. Maybe. But while the current system seems based on greed and fueled by fraud, and certainly needs reform or replacement, we are talking about real people here. Homes lost. Companies shutting down. Bankruptcies. Scarcely a cause for celebration. And it’s hardly a given that a pissed-off working class struggling with debt will break towards the left, they could just as easily go to the right.

Let’s say Monica just got laid off as a waitress at a restaurant catering to a business crowd who are no longer coming because of economic slowdown, and that she and her husband are now in danger of losing their house. The Left needs to be there with an understandable explanation of how our rapacious economic system created such a catastrophe for her.

PS And as DJ comments, find ways to help her!

  • DJ

    “One of the driving forces in the US economy has been consumer money coming from home equity lines of credit, a source that has now dried up.”

    One of the pressures of the debt market continues to be the Bush spending (stealing?) binge in which trillions of dollars have been borrowed to pay his buddies for war-related services. Yes, the government is competing with average Americans for a shrinking debt market.

    As a traditional conservative, I am opposed to most debt, except when secured by assets as in (sensibly-structured) home mortages, or in emergency situations. Our nation has enslaved its citizens with a debt culture that sucks up their income with 25% credit cards and the like. Nevertheless, as the government commands more and more of a shrinking debt market, the laws of supply and demand mean interest rates will continue to rise, siphoning off even further wealth from those in the middle and lower-middle classes who can’t afford to pay off.

    BTW, when “Monica” gets laid off and loses her home, I sure hope the Left has more to offer than “an understandable explanation” of how Randian capitalism did this to her. She may be more interested in a meal or a couch to sleep on or a ride to get her kids to the doctor!

  • Hi there,

    I’m researching this topic for an upcoming article, and I wanted to know if you find it at all interesting that one of Bush’s major platforms of his first term was to make “everyone a homeowner.” Now we are seeing record defaults during his second term… bad timing? Or perhaps his strong rhetoric was a favor to those financially-aligned with the market to benefit from reaping in all these subprime loans?


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