1st Real Estate Search

Okay, so the leader here may suggest that the answer to financial meltdown the world faces will be contained in this article but I am sorry to have to tell you that this is not the case. What I can try to do though is examine the current suggestions being put forth at present to analyze what might be the best way forward. Hopefully this might cast a light on the way the future events may unfold.

To start off, for those of you who are without television, radio, newspapers or indeed any
contact whatsoever with the outside world, we are currently facing a global financial crisis the
like of which we have never seen before. Of course there was the great stock market crash of
1929, but without trying to make light of that catastrophe, money these days is simply vastly
greater then it was back then. We are currently talking about the loss of hundreds of billions
and even trillions in the case of some countries.

This is ultimately the crux of the problem. As a lender, once you lower your standards you are opening the floodgates to all manner of problems. Some people should not be allowed to borrow because they are either unable or unwilling to pay the money back. Now obviously there will always be the odd financial risk on the part of the lender but what occurred over the last decade was that lenders seemed to have no compunction about which they lent money to with result that they were faced with colossal sums of money that they were unable to recover.

How exactly has this resulted in the situation we have today? Well the obvious result of reducing your standards especially to your borrowers is essentially you leave yourself open as a lender to a greater risk. There are reasons why some people should not be granted a loan and that reason can be as simple as they may not repay it. It has to be said that over recent years this has been classed as an acceptable risk to lenders. But years of this sort of lax lending has resulted in lenders with very high risk lending books with poorer prospect of ultimate recovery of the debt.

And so begins the vicious circle. Due to getting their fingers burnt, the lenders are now less willing to part with their money and loans are harder to obtain. With regards to banks and building societies, the money that is at their disposal comes from deposits made by the public for the purpose of generating some interest. Because of the fact that these institutions are now less willing to agree loans due to bed debtors, their depositors start losing faith in the institutions ability to safeguard their money and so they start to withdraw and close their accounts. So now the bank finds itself in the situation where it has even less money to loan out to what they perceive as good debtors. This is recognised by the stock market and in turn the banks stocks start being sold off and the stock value spirals down and before you know it the bottom has dropped out.

So what solutions are being proposed to fix this mess?

To start with, some banks in the US, the UK and Ireland made the first move by guaranteeing
their clients money with tax payers’ money. This move was clever as it instilled clients with
confidence, which is what has been lacking over the past months. There may in many cases be
no need for a bank’s downfall at all, but when people get nervous, they tend to bolt at the first
sign of uncertainty, which can be the cause of a bank’s unnecessary demise. Boosted
confidence means that people are happy to stay put so that the banks’ assets are not
undermined.

Another method the UK and the US have adopted is to propose enormous bailout plans, which would be impossible to accurately explain within the confines of this article, but they are essentially using the tax payer’s money to purchase chunks of these institutions. But will this be a success? Ultimately, at present there is no clear cut answer to this question. But if the liquidity in the markets doesn’t start to flow then they could be on a hiding to nowhere, because without some movement the world will be faced with a recession far greater than could have been predicted.

One thing that is painfully clear is that banking as we currently know it has got to change
radically. There is a considerable amount of regulation at play at the moment, but in my
opinion as a financial advisor, there is not enough regulation being focused in the right areas. I
very much doubt that any of the major large money lenders of the world has been as
rigorously scrutinized as they should have been over the last ten years as this may have been
seen to be restrictive practice. But let’s be honest, if that were the case, would be in the mess
we are in now? If the lenders had been properly questioned when it came to giving out money
to bad debtors, if that money had never been given out, if the lenders hadn’t dropped their
criteria so dramatically, would house prices have gone so ridiculously high and would we be
facing the worst recession in history? What do you think!?