The world is now in a new period of recession, because of a crisis that had its origins in real estate loans, but it reached such magnitude that brought down two of the largest U.S. banks.
Like a roller coaster, the world economy goes up and down to go through periods of growth and recession . Today, as we know, the car is in decline. Have to get used to using the word 'Crisis' to describe the current economic situation. To understand the origin of this contraction of markets is necessary to untangle a web of real factors.
The financial crisis of our time left in the United States in late 2006. The Americans had undergone a long period of prosperity, so they had greater purchasing power, or had more money.
banks then decided to be more flexible in providing loans for buying property, giving as many subprime loans, aimed at customers who were not creditworthy enough in their ability to pay. Were mortgages, so if the customer failed to pay its debt, bought the apartment house or passed into the hands of the bank.
| Famous subprime loans are a type of loan that U.S. banks are customers who do not have much ability to pay, so they have a higher risk of failing to pay its debt. To offset this risk, banks lend the money at a higher interest rate, which means that ultimately the customer who requested the loan is to pay more. |
banks were more willing to lend money, and so did interest rates low.
| The interest rate is an amount of money that someone must pay for borrowing. If a person deposits money in the bank, the bank pays a sum of money to that person, according to the prevailing interest rate. If a person borrows money from a bank, must pay a certain amount to the bank for it. In the end, everyone who borrows money is to pay for it. How much? A percentage of the amount borrowed. |
As interest rates were low, people were more willing to borrow, for example, to buy houses and apartments, so there was an increase in real estate.
BCI analyst brokers, Auszenker Pamela explains that "at the beginning there was a boom in the housing market and a lot of competition among banks to get the business and in that sense there was a race for real estate loans and is not fixed a lot on who you were paying. "
Pamela What he means is that banks competed to lend money to people and therefore paid no attention if these people would be able to pay the debt.
As banks wanted to make more loans require greater liquidity, ie money cash. They needed more money to provide more people who want to buy houses! Then resorted to a common practice in the industry: the marketing of the home loans. This business is that banks sell to other investment firms debt that people have bought them for your home.
| Can you sell a debt? Sure, if a bank needs cash and has a portfolio of customers in debt to him, he can sell to another bank or financial institution, the purchase at a lower price. So people who owed money a bank debérselo pass to another, which for them does not bring serious consequences. The bank sold its portfolio of receivables, it stops earning interest on the other hand, gets cash to spend on urgent business. |
These credits are sold as mortgage bonds, ie in case of default by the debtor, the property is held by the lenders.
But there was an oversupply of homes, known as 'on stock', plus many people could not keep paying their debt and bought houses that had passed into the hands of banks. Suddenly the banks instead of money, had a lot of houses and apartments and had to finish them off. But since there were so many homes being sold at the same time, its value decreased dramatically. Turned so the banks could not recover the capital they had invested, lost money all the time.
Lowering the price of housing, also dropped the price of mortgage bonds that banks were sold to other institutions. These were equivalent to or even exceed the value of the property, because when customers acquired subprime debt with the banks, it was thought that the houses and apartments will rise in value over the years. Realising
this background, financial institutions that had purchased mortgage bonds to the banks tried to unload them, but it was too late. Investors, including foreign banks such as BNP Paribas French , lost confidence and began to withdraw their capital from them, bringing liquidity problems. It was such a disaster this year broke two of the five investment banks in the United States: Bear Stearns and Lehman Brothers , the latter with 158 years of history.
recession: an epidemic
is how a problem became a real estate financial crisis, which by now spread to the economy as a dangerous flu.
The fall of these two banks in the U.S., coupled with the poor results of other banks, caused the collapse of stock markets the world. The bags are the places where the value of traded shares or securities owned by a corporation or company and therefore reflects the situation of these companies.
Since the values \u200b\u200bof the stock markets plummeted, countries began to take steps to address this new contingency, such as lowering its growth projections, which is measured by domestic product (GDP) of countries.
| The GDP is the value in monetary terms of the production of goods and services a nation in a period, which may correspond to a quarter or a year. If the GDP increased from the current period and the previous one, means that the country grew, if GDP declined between the two periods, it means that the nation is going through a recession. |
The current economic situation facing the world has led some countries to declare a recession, ie, already have two quarters in which gross domestic product (GDP) has fallen, as is the case in Ireland.
As nations earn less in a crisis, consumption decreases, both nationally and internationally. Therefore, demand declines, it is the intention of purchasing goods or services to meet needs. If there is less demand, lower prices of goods and that is what happens to the value of commodities .
| The commodities are the goods as raw materials are required in the international market, such as gold, copper and oil. |
If producing countries declines, they buy less copper, hence its international price declines.
Symptoms in Chile
According to analyst BCI, "the commodities fall by two factors: first, the dollar has been strengthening in Chile, in the third quarter of 2008 we moved from a dollar $ 430 to a dollar to $ 650 and the second reason is that it expects lower demand for these commodities economies. "
can be difficult to understand that the crisis stemming from U.S. to revalue its currency, but the a crisis people tend to save their money, buying the currency that seems more stable. Ausenzker clarifies that "the dollar has historically been an instrument of refuge for people, and before any crisis, people tend to take refuge in the dollar because it sees it as a relatively stable currency will not lose its value."
Turning to the drop in commodity prices, is fairly low on this factor which will have a direct effect of the crisis in Chile, as exports, especially copper, are a great base of the economy and the loss of value these goods and less in demand, revenues country will fall and growth will be negatively impacted.
Despite this, Pamela Auszenker have a look a little more optimistic, as she says "because we're in a global economy, we will feel the effect, but it will be far smaller than in the rest of the world" . This is understandable because at a time when copper prices reached historic government policy was saving you can now deal with the crisis more solid , but also because the country's banking system is strong and debt levels of private banks with foreign institutions is low.
So it is prudent to encourage savings and to limit spending, but not to panic, as in times of crisis, we should not "enter into crisis."
Source: Educating Chile
