Credit Card update

I was pleased to discover that it is still reasonably easy to get 0% interest for balance transfer credit card deals despite the credit crunch. Seems like there are still funds available for the lucrative credit card market even if the mortgage market is getting squeezed.
I went looking about a week ago and found a good range of maybe about five or six cards offering 0% deals for 12 months, I have already done this twice so there are certain providers that I have already used, I prefer to start afresh, and on this occasion, having previously gone for Virgin Money, and Royal Bank of Scotland... I plumped for the Alliance and Leicester.
This card has a feature which I do not plan to use, but may be of interest to those that are into 'stoozing' a term attributed to the practice of borrowing money at 0% and investing in order to make interest. the Alliance and Leicester allow you to transfer funds not only to a credit card, but into your current account if you want... Don't forget that it will still be subject to a fee (3% is usual) so you will have to offset the charge against any profit.
I have never done this myself, and would not recommend it unless you know what you are doing, as making a simple error like forgetting to clear your balance at the right time could easily lose you any profits. That said, it is a proven way to make money for nothing...
This latest 0% deal should enable me to pay off any remaining credit card debt within 12 months freeing up my cash for the next project which will be to pay off my mortgage at a quicker rate.

Related posts:
the decline of my debt
where did it all go wrong?
how to get out of debt

Effects of the Credit Crunch in the UK

Naturally UK citizens are anxious to find out whether the UK will be hit by the Credit Crunch in the same way as the US - the answer has to be: No, there will be differences some of them quite significant.

Firstly the sub-prime mortgage market problems are not the same in the UK, there will not be as many 'victims' of badly sold mortgages. The global effects suffered by the lenders has reached UK financial institutions, but there are not likely to be as many instances of negative equity in the UK. However the knock-on effect of a lack of funds for lending will certainly hit UK first-time home buyers.

The extra factors of rising costs are different in the UK, of course the cost of a gallon of petrol or diesel in the UK has always been higher than in the US, so the rises seen here are probably in some sense easier absorbed. On the other hand any further rises could make people more seriously consider their transport options. The weakening dollar has made some imports seem cheap in the UK, whereas imports into the US are looking expensive - This is another way in which the Credit Crunch UK style has a different complexion to the US version.

Unions are traditionally stronger in the UK, so it is more difficult to keep a lid on wage rises - strikes are already under way in some sectors and threatened in others. So in conclusion, we can demonstrate that although both sides of the Atlantic are affected by the same phenomenon, they are not affected in the same ways..

Popular Questions:
Will we all end up broke?
How long will the credit crunch last?
Sub-prime mortgages to blame?

Is Government Intervention to be welcomed?

Let's be quite straight here, the Western Economy is built on a free market which is supposed to rise and fall based on supply and demand and the many other factors that may effect a free market. Intervention is a dirty word and goes completely against the philosophy of a free market, whether it be intervention from influential capitalists or from Government, this type of activity is not conducive to a free market and can only have a disastrous effect.

During the current credit crunch, both the US and UK Governments have sought to put policies in place to shore up the economy to fight the relentless tide that is a natural 'market low' resulting from the over-inflating of the market caused by the sub-prime mortgage problems.

When you build a dam to stop an inevitable tide, what happens? When the tide eventually breaks through the problem is far worse than if you had allowed gradual ingress and fought the problem where it would have naturally occurred.

So why do politicians try to intervene? Simply because they are on a four or five year term and they don't want the credit crunch to happen on their term of office. If they can stave it off until after the next election it maybe somebody else's problem - this is the worst side-effect of our ailing democratic system.

So what about Northern Rock, Fannie Mae and Freddy Mac? Trying to keep these institutions afloat is going to cost taxpayers a fortune, and for what? So that politicians can say they did something...but the truth is that if these financial institutions need to go to the wall as dictated by the free market, then that is exactly what should happen and the credit crunch would be over that much faster. Shoring up these crippled companies only prolongs the agony for the rest of us. I don't want to seem unsympathetic, but these companies basically bought bad debts thinking they were good debts. Instead of being bailed out by the taxpayer, they should now face up to their mistakes otherwise where does this intervention stop??

Related posts:
Is this the new Great Depression?
Credit Crunch News
The Multiplier

Mortgage lenders in trouble

Some of the biggest mortgage lenders in the US are reportedly in trouble and the fault really lies with the sub-prime market and how some well-respected companies became embroiled in this market.

Competition for lending in this end of the market had driven lenders to offer mortgages beyond the grasp of those who borrowed just to get names on accounts and show a rising business. One can only guess that they believed that rising property prices would mean that the lender was not going to lose out, either that or they just didn't care...

These sub-prime lenders showing healthy-looking lists of accounts were snapped up by bigger institutions such as Fanny Mae and Freddie Mac. In retrospect, we all now know that was a big mistake as those balance sheets did not tell the real story.

These big institutions could now pay a big price and the bad news is that other big banks could also be fatally wounded as the markets collapse across the world. This is not to say that home owners with mortgages need worry about problems with their lender, the worst hit will be those who may struggle to pay their mortgage regardless of the lender.

Popular Questions:
Will we all end up broke?
How long will the credit crunch last?
Sub-prime mortgages to blame?

Is the Credit Crunch the new Great Depression?

Are things going to get as bad as they were in the 1930's? Well no because living conditions nowadays are nowhere near as dire as when the poor had the queue for bread in the depression following the Wall Street Crash of 1929.
There are of course similarities that serve to illustrate the weaknesses of a market-driven economy.

'Black Thursday' followed a speculative rise in the markets due in part, to the introduction of new technologies which did not live up to market expectations. The new technologies of the nineteen thirties were the motor car and broadcasting. The new technologies which have caused excitement, then cold-feet in more recent financial history were related to the 'Dot Com' boom and the new optimism that accompanied it. We know now that many of these companies were fatally over-valued, and the resulting decline in the market caused a huge crash in 2000. There were no great scenes of poverty across the western world as a result on this crash, but is any of this related to our current crisis?

Much was done to stimulate the market following the Dot Com boom and bust and some of this over-inflating of the economy could be at the root of our current credit crunch. This time, the trend was to buy buy buy property whatever the price, many people capitalising by investing in properties that they would rent out, the 'buy-to-let' market is one of the most talked about phenomenons. Properties aimed at the rental market have been popping up everywhere in the sure hope that buy-to-let investors would buy them. Along with this came the 100% mortgages and to top it all the '12months free mortgage' where the buy-to-let'ers had 12 months to get someone in to rent their property before they had to even pay a penny off the mortgage. the resulting 'boom' in mortgaging let to a corresponding 'bust' when the 12 month old chickens came home to roost...

The reality was that there was never the demand to meet the supply. Market prices of property had been driven up by the over eager buy-to-let entrepreneurs. Many potential first time buyers have been hit with high prices at a time when wages are not rising and where banks are getting nervous about lending. Those that want to rent have so much choice that they can name their own price, typically far lower than the mortgage payments that their landlords are obliged to pay. Buy to let is virtually dead, first time buyers cannot afford the over-inflated prices, the only good thing that can happen is that property prices must fall, and for those who over-stretched themselves and maybe foolishly took the 12 months free 100% mortgage deal are the ones who will pay.
The effect should be in these areas:
There will be some negative equity issues where those that bought at the peak cannot now afford to pay their mortgage. This could also have an impact where re-mortgaging seemed like a good idea... Those who looked to make a living from renting out properties might have to re-evaluate their position. General spending on 'luxuries' will decrease, we may keep the car that we were going to part-exchange or holiday at home rather than abroad. Some jobs will be lost as a result of the spending slow-down, but I don't see general despair and gnashing of teeth - just a little belt-tightening and a reality check.

Related posts:
Government Intervention
Credit Crunch News
The Multiplier

Weak dollar accelerates the Credit Crunch

We have seen the pro's and con's of a weakening dollar over the last six years or so affecting imports and exports. For the nations that mainly import (which is surely most of the Western world?) It has basically meant a rise in prices and especially the price of oil. It's still funny to me to hear the US general public going on about how much they pay for their fuel. They would be flabbergasted to hear how much car owners in the UK pay for fuel.

The price of oil in the US affects world trade even though other currencies appear strong. Historically, we have relied on the US economy to stabilise the Global economy, and now there is talk of the Euro taking over as the next stable global currency. Of course the Euro has been coming into it's own over the last few years whilst the dollar has been in decline, with many more countries accepting the Euro as it's curency (the UK being the most notable exception).
The decline of the dollar has seen Europeans acquiring US companies and European visitors spending freely on the bargains that are to be had in the US. These anecdotal occurences will not be enough to bolster the Dollar.

The question remains though, what will happen if the US Dollar goes into free-fall ? (and quite honestly the credit-crunch effect is only going to hasten this event...). Can the Euro just slide in to occupy the gap left by the Dollar? Seamlessly replacing it almost like a sleight of hand trick?
I'm not sure that the world is ready to place it's trust in what is still in global terms a fledgling currency, but there seems no real alternative. The UK currency - Pound Sterling is certainly well-established, but although it is mightier than the dollar right now, I am sure that financial collapse in the US would have an undeniable knock-on effect on Sterling rendering it useless as a global alternative. Is the Euro considered sufficiently removed from the US economy to be able to ride the storm of a free-falling Dollar?
Maybe, but I would prefer not to have to find out....

Popular Questions:
Will we all end up broke?
How long will the credit crunch last?
Sub-prime mortgages to blame?

Will we all end up broke?

No as long as you are sensible about your money. Firstly the credit crunch will have it's most significant impact will be the sub-prime mortgagees - ie. those who have 100% mortgages with little hope of keeping up the payments.
The knock-on effects will effectively squeeze the whole credit industry making credit harder to obtain.
There are three main additional contributors to our current crisis:
1) static wages
2) rising costs for fuel and food
3) the acceptance of spending more than you earn as being 'normal'
There is not much that the individual can do about the first two, and although a slow-down in spending will have an even worse impact in the short-term, I believe we all need to make budgets and try to cut down on debts..

Inevitably, as with all financial crises, there will actually be some 'winners'... Those first time buyers with a decent deposit and a decent level of earnings will be able to take advantage of the repressed property market to buy cheaply especially where others may need to sell quickly. Those with healthy finances who can keep a decent level of earnings will not suffer any negative effects from the credit crunch.

Credit Crunch latest news

You don't have to just take my word for it as today the Bank of England announced that banks would need to tighten their criteria on mortgages. This comes as no surprise to those who have been monitoring the situation, but clarification is always helpful.

Home lending has already been curbed from the beginning of the year and it is likely that lenders will require higher deposits. Despite the tougher criteria, there is no indication that costs for mortgages will rise and quite honestly there would be no justification.

A statement issued by US Treasury Secretary Hank Paulson indicated that the current predicament is set to continue 'for some time' and the problem will be accentuated by soaring oil prices. However, he predicts a 'recovery' by the end of the year, but does not indicate specifically how this recovery will be measured, leaving the door open for any statistic to be potentially quoted at the 'end of the year' to support this claim. Government statisticians will be scrabbling for their pencils in November to work out which statistic they are going to trot out to 'prove' financial recovery...

He gave the statement after meeting with UK Chancellor Alistair Darling in London shortly before the price of Brent crude oil hit $146 a barrel.

Popular Questions:
Will we all end up broke?
How long will the credit crunch last?
Sub-prime mortgages to blame?

How long will the credit crunch last?

This is chief amongst the questions that I have seen asked about the credit crunch.
In reality, there is no way of knowing how long this current situation will last, and seeing as there is no defined way of measuring 'the crunch' itself, you won't actually know when it's over. It's more of an adjustment than an actual event.
The current difficulties were primarily brought about the problems with the sub-prime mortgage market impacting on the reserves available for lending - It has been accentuated by rising prices (especially fuel) and static wages, and also 'fueled' by the general acceptance of credit as a way of life and persistent overspending on credit.
In the UK, mortgage rates are linked to the Bank of England base rate which is currently reasonably stable. The problem with lending is that the financial institutions have suffered from overselling mortgages in a declining market, and they don't have the capital reserves to lend out. House prices are fairly stable, it's just that houses are not selling... This tells us that first time buyers are finding it more difficult to get 100% mortgages, now I have to say that compared the the situation where 100% mortgages were freely available in a falling market - that's actually NOT such a bad thing. The people in trouble will be those that took these mortgages and find themselves unable to meet the payments.
What can we do? Well, we can make budgets and NOT spend more than we earn, pay off our debts so that we are financially healthy - this will have the impact of slowing down the economy and people are going to lose jobs... this is inevitable.
So how long will it last? put it this way, how long have governments been trying to stave off the inevitable (just so they wouldn't get the blame and lose the next election?). I estimate they have been trying to 'fix' this for two to three years - I would not be surprised if it takes two or three years for the economy to be able to rise again.
Don't be fooled, our economy works on rises and falls, the only time there is a real problem is when governments try to intervene to prolong a rise when they should just let the fall happen.