The Credit Crunch

The world is, as they say, going to hell in a handcart (who is this 'they'? Huh?).
This years fashionable handcart is the 'credit crunch'. Normally, Deadbeat has only a passing interest in the financial world. When everything is running smoothly and millions are being silently scooped out of the pockets of the poor by the rich selling them the wealth of their own planet, (and destroying it in the process), Deadbeat feels that further comment is unnecessary. 'Normal' perturbations in the international money markets are simply the occasions when some cocaine-fuelled, red-braced tossers make huge piles of dosh at the expense of other, similar tossers.

The credit crunch is different, however, and worthy of notice.

First, some background:
Just as in the UK, house prices in the States have been going crazy for the past decade. Investing in property has been such a good deal that pretty much everyone who could afford to was onto the 'property ladder'. When the banks had lent money to everyone who was credit-worthy, they were forced by the inexorable capitalist law of 'expand or die' to start lending to people who weren't credit-worthy.
(Two brilliant examples of this: the first is the 'self-certification' mortgage - you told the lender how much you earned and they promised not to check - also known as the 'lie to us why dontcha' mortgage: and second is the introduction of 'teaser' rates to tempt people into their evil, blood-sucking schemes, and to help to keep the accounts alive long enough for the house to be worth more than the arrears.)
As long as the property market continued upwards, it didn't matter (to the lender) whether you could afford to meet the payments or not - they would simply repossess and take their pound of flesh (oh, and a bit more for their trouble) from the increased equity.

Into this miasma of legal chicanery was added some good old-fashioned American enterprise in the form of criminal mis-selling.
Poor people were told that their shack (or trailer-park mobile home) was worth hundreds of thousands of dollars, which they could have in cash. The repayments for these loans were, initially, very low and affordable, even by poor people (see 'teaser rates, qv).
The 'teaser' rate would continue for ever, these borrowers were told, because the property could always be re-mortgaged - and liberate more money - before the offer period ran out. But when (if) the offer period did expire, then all of a sudden the loans were going to get very expensive. more than the borrowers could possibly afford. In fact, some of the worst misselling scams sold mortgages that reverted after only a couple of months, or days. You see, repossessions and forced sales take time, and by then - on paper - the property would be worth more....

The poor people signed the papers, took the money, and spent it.

The mortgage agents, house valuers and lawyers all made their wedge; the bankers were sitting on big (paper) profit forecasts (the sub-prime mortgages were lent at punitive interest rates to compensate for the 'increased risks'); so everyone was happy and no-one asked too many 'what if' questions.

These 'sub-prime' mortgages were then packaged up with lots of other debts, and traded in chunks on the international money/debt markets. This packaging and repackaging spread these worthless loans everywhere - and theoretically thinly enough that no one could lose any money (except the poor, of course, who stood to have everything they owned taken by bailiffs with guns - but they don't count). But on paper these toxic loans gave good returns, and the greedy bankers had spread them, like ever-thicker slabs of rancid butter on their ever-thinner crackers of real loans - and fed them to each other; and cashed commission and bonus cheques; and gorged; and gorged. And now all their bellies were full of the poison.

Last year, however, the inexorable upward spiral in house prices came to a halt. With re-mortgaging no longer an option (the property was already on its 'up-the-hilt' limit) the teaser rates began to expire in droves. When faced with impossible monthly repayments - often more than total take-home wages - for horrid houses in the worst parts of nasty towns, the poor people did what you would expect. They turned their backs on their horrid shacks and moved. In hundreds, they defaulted on their loans.
To the tune of about a trillion dollars, it seems.
Suddenly, there were many repossessions - but no-one wanted to pay inflated prices for slum tenements, so the price dropped and still the horrid shacks (or rotting trailers or whatever) remained unsold.

The dreadful truth began to dawn; no-one wanted to live in the properties which were supposed to be worth all that money. The only reason anyone ever did live there was because they couldn't afford anything better.
The money had been spent, the repayments were not going to be made, and the collateral was worthless.
And last summer the bankers did what bankers do best and started to panic.

Every time they re-cast their possible losses the numbers got unimaginably worse. The bankers and bloated dealers had all bought and sold these infected loans as they went about their daily work of screwing each other up the arse, and had passed them round like financial HIV.

Everyone knew that everyone had lost loads of money, so now no-one trusted anyone. Loans were no longer on offer and someone coined the term credit crunch. Innocent (if stupidity unprepared) entities like the Northern Rock were ruined.
The global economy is now getting ready to pull in its horns; hundreds of bankers are being forced to consider doing proper jobs, or without the Ferrari.

The bankers are REALLY pissed off. Their greed - and nothing else - set up a situation which caused them to give over a trillion dollars to the poor. Money they are never going to see back. Which is why they are going to stamp on the global economy really hard, to squeeze all that juice back out.

We have witnessed the largest ever transfer of wealth from the rich to the poor, without a revolution, in the history of the world. The Poor, naturally enough, have pissed it all up the wall and are now just as poor - albeit with a new computer, plasma TV, 4x4 and a couple of guns.

Sometimes the business section of the newspaper is the biggest grin of the day.

Cheers

and happy feasting.