Are Credit Problems To Blame For Plummeting Stocks?
Friday August 10, 2007
If you tuned in to any news source yesterday, you heard about the Dow's 387 drop. Well, it dropped another 133 points this morning, according to Associated Press. Stock markets all over the world are taking similar turns.
The culprit for the plunge? U.S. consumer credit problems.
The largest U.S. mortgage lender, CountryWide Financial, is experiencing higher-than-normal delinquency rates with subprime and prime borrowers and expects results to be effected because of it. MSN reports more than 20 subprime lenders have shut down as a result of increased delinquencies and mortgage defaults. The surmounting problems in the mortgage industry led to a French bank's halt in investing in U.S. subprime mortgages, which, in turn, led to the Dow's drop.
Elizabeth Weintraub, Guide to Home Buying/Selling, talks about why the subprime market is crashing. She lists lending to consumers with low FICO scores as one of the reasons.
Foreclosure rates continue to increase, yet, interestingly, so does consumer credit. According to the Federal Reserve, consumer debt hit a record $2.459 trillion in June.
So who's to blame? Consumers for continuing to rack up debt after taking on mortgages and even after facing foreclosure? Subprime lenders for knowingly lending to financially unprepared consumers? The Feds for pumping billions into the banking system without fixing the real problems? Or all of the above?
What's your take on how credit problems are affecting the nation's - and the world's - stock market?
The culprit for the plunge? U.S. consumer credit problems.
The largest U.S. mortgage lender, CountryWide Financial, is experiencing higher-than-normal delinquency rates with subprime and prime borrowers and expects results to be effected because of it. MSN reports more than 20 subprime lenders have shut down as a result of increased delinquencies and mortgage defaults. The surmounting problems in the mortgage industry led to a French bank's halt in investing in U.S. subprime mortgages, which, in turn, led to the Dow's drop.
Elizabeth Weintraub, Guide to Home Buying/Selling, talks about why the subprime market is crashing. She lists lending to consumers with low FICO scores as one of the reasons.
Foreclosure rates continue to increase, yet, interestingly, so does consumer credit. According to the Federal Reserve, consumer debt hit a record $2.459 trillion in June.
So who's to blame? Consumers for continuing to rack up debt after taking on mortgages and even after facing foreclosure? Subprime lenders for knowingly lending to financially unprepared consumers? The Feds for pumping billions into the banking system without fixing the real problems? Or all of the above?
What's your take on how credit problems are affecting the nation's - and the world's - stock market?
Comments
This is a really scary situation. I think all three are responsible for being irresponsible! The average consumer is taking on more and more debt with no emergency savings plan, the lenders took a chance with a downside that not only effected them but the families they made loans to. I do not understand enough about what the Fed can or cannot do to comment although it seems that they should have reacted to the economy before the damn broke on this mortgage debacle.
Basically, the economy has been debt driven since the late 40s, however the debt has continued to escalate and until 10 yrs ago, the USA manufactured and produced actual real wealth. When people started using the equity in their homes to borrow for autos, large TVs, disney vacations etc and when banks started increasing credit card limits, the end was sealed.