The Fiat Currency Delusion : The Global Financial Crisis from 2007 / 2008 is still hiding in the shadows of the world economy
Many people currently believe that the Global Financial Crisis from 2007 / 2008 has since resolved, while money is indeed changing hands and there is more available credit now than ever before, this is not indicative of a healthy global economy.
Since the 2007 / 2008 crisis, central and private banks globally have dropped interest rates dramatically, causing more people to take up low interest loans and hence increasing the supply of currency available to the community. This however has not helped those who were forced to forfeit their assets as they defaulted during the 2007 / 2008 period, the majority are still being chased for repayment of that money even today. The big question about this is, where did all the available money go from the loans which were paid out before the financial collapse.
The housing market was rigged in such a way, everyone inside the industry knew a collapse was about to come, but the ease of availability of credit to companies before 2007 meant many did not have any reason not to issue loans and mortgages.
The benefactors before 2007 were the mortgage and loans companies, they had their loans insured heavily against bankrupcy, so any future collapse would see their creditors paid out a majority of the losses, until this occurred they would be making money off the interest repayments, hence still turning a profit until the collapse actually occurred.
The only thing they needed to do to ensure bankruptcy insurance would be paid out, was that they were not giving out loans in a manner which would be considered unlawful or reckless, this was covered fairly simply, as housing prices began to soar, easy lending mortgage companies popped up everywhere, as their rumours were pushed out to the public to the lines of housing would soon become completely unaffordable, many were willing to lie on their mortgage applications in order to secure a loan, unable to see any other way to ensure housing affordability in the future with the market value of homes and property rising so fast.
This enabled the majority of mortgage companies during the 2007 / 2008 period, to claim they had acted in good faith, and that it was in fact the fault of the mortgage applicant (debtor) as to the fraudulent activity. The truth is none of these mortgage companies did anywhere near enough background checks, and with ease of availability of money from creditors, mainly the big global banks, the scam to hyper-inflate the price of housing and property was too easy an opportunity to pass up.
With property seeming to be a win-win investment, many of these loans were packaged up and sold simply as shares in housing / property packages, these kind of share packages are then purchased by smaller credit companies, to act as securities to their own investors. Many of these shares ended up in the hands of small investment companies, or companies whom mainly look after retirement investment, also known as superannuation investments, across the globe. With the shares classed simply as property investments, and the fast rising rate of housing prices globally, little thought was given as to any amount of risk that could come from holding parts of these fairly unknown mortgage loans.
Then as housing reached all time highs, the fall out began. Suddenly huge amounts of mortgage holders, later dubbed sub-prime debtors, could no longer afford repayments, quickly the value of these private property bonds came falling back to zero, and as creditors rushed to protect themselves, new mortgages were restricted heavily. Many of the mortgage lending companies responsible for the crash closed up shop, having pocketed most of the profits beforehand, leaving the business for bankruptcy clearance companies to handle and on-sell the debt to recover some return to creditors further down the line, while keeping debtors entirely accountable for their past loans.
During the fall out period of 2007 / 2008, governments globally began to prop up banks, the original creditors of the mortgages, to cover their huge losses, hence making the effect of the GFC almost non existent to them. The only losers in this situation became the debtors, while the remainder of the industry was propped back up with stimulus packages reducing or eliminating the first line creditors problems.
It took some time for investment interest in the housing market to begin once more, however by 2009 many individuals with savings prior to 2007 were the first back into the market, today the price of property is around the same as 2002 levels, still a high ratio and affordability is still a major issue.
However mortgage lenders are now stricter with their lending criteria, many people claim because of this there will not be a repeat of 2007 / 2008. To believe this however would be extremely naive.
While there are less bottom of the line debtors, think about this, all these houses sold previously, the original sellers were paid in full, this is where you begin to see the scam unfolding. It was clear to mortgage lenders that their actions would create financial chaos, but it would for the short term (before the crash occurred) push housing prices sky high. With available credit to provide to new debtors, those selling property who understood this situation could effectively cash in with easy home sales before the bust began.
In addition to this, those entering the market in 2009 buying property once more became limited only to those with available funds, those who had made their money before 2007 could now buy up the same property for a fraction of the previous prices, and with extremely low federal reserve lending rates, the price of property was quickly inflated back to near unaffordable levels.
Although the ‘sub-prime’ debtors issue appears to have been a once off scam, do you really think that the availability of cheap loans to more secure investors (those with more available capital), coupled with the current price of housing now again near unaffordable levels, and the banks having barely suffered a dent in their bottom line during 2007 / 2008, are all a combination for a stable economy?
While the main cause of the sudden bust from 2007 / 2008 has been further regulated, the same ability for a crash is possible today, especially with soaring inflation due to the low interest loans being dished out by the federal reserve and major banks once again, pushing the price of property and other goods / services higher. With seemingly static wages offered by employers, and little growth in the commerce and industrial sectors, the recipe for another 2007 / 2008 Global Financial Crisis is still here, it has only been delayed until another time in the near future.