banking and economics
the credit crisis: am I missing something?
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Apparently, there’s a credit crisis on at the moment. Banks are finding it difficult to raise money on the markets, and (as they do) they are passing on that difficulty to us. Or in other words, banks are finding it harder to borrow money, and so in turn they are making it harder for businesses and people to borrow money.
It’s supposed to be a major deal, and I know that people are talking about it a lot, but I seem to have missed the memo about the effect it should have on me.
My day job is in a growth area, so there hasn’t been any slowdown in workload, and currently we’re enjoying relative job security. So, I’ve got no more worries than usual on the employment front. Also, despite a lot of talk of recession, I haven’t actually noticed more major redundancies than normal.
Prices, are apparently going up. I don’t keep a price book (I probably should, but I’m too lazy) and so I haven’t noticed whether this is true or not. I know that the price of petrol (gas, for those that don’t speak the Queen’s English) has increased lately as the price of oil continues to rise, but as I don’t own a car, I felt the direct pain of that. In a country where you can buy a T-Shirt for less than half an hour’s work at minimum wage, I think prices would have to increase a lot for there to be real hardship for the majority of people.
I think the biggest obvious impact that the credit crisis has is in the availability and cost (in the form of interest rates) of credit. I only have two debts - a student loan, and a mortgage. The interest rate on my student loan is tied to inflation, and is paid back via the tax system, so as long as my salary continues to increase at least in line with inflation it shouldn’t cause me any reduction in net income.
My mortgage is a two year fixed rate deal (typical first time buyer mortgage) and I’ve got another year to go before the end of the fixed rate. So there’s no problem there. Of course, I will want to remortgage in a years time which could be interesting if house prices drop too much (currently I’m about 10.3% above negative equity) the latest prediction are for a 5%-10% drop so I may not be able to remortgage on good terms, or at all. In which case, I’m almost certain to see an increased mortgage payment. But, as the last year has shown, a lot can happen in the financial markets in twelve months.
In short, I’m not worred about the credit crisis, it honestly doesn’t seem to have had much effect on me. But maybe I’m missing something. Let me know about your experiences, and what you think of the credit crisis in the comments.
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10 comments for “the credit crisis: am I missing something?”
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It probably doesn’t have much direct effect on you. It doesn’t on me either. But it does effect a large number of people (losing jobs [say in mortgage banking, construction...] makes it difficult for some to get loans [especially businesses which then maybe can't expand and hire more people...]).
So I agree that often people act like they need to react to changes in the economy. I don’t believe you normally do (businesses might have to adjust) and if you are right on the edge you might have to adjust. But normally for personal financial matters smart choices don’t depend on what the economy is like today, this month or this year.
I posted some of my thoughts earlier: Uncertain Economic Times.
At this exact moment it’s not really affecting me, though my household had 2 mortgage related layoff last year. Essentially we’re not where we wanted to be but we’re doing ok.
I’m in an industry that’s also growing, seeing rises at the grocery store (the ice cream i like is up 1.39), and drive as a part of my job. So I’m kinda feeling it, but again, doing ok.
The issues fall when you were just getting by before, are in an industry that isn’t doing well, or driving is an integral part of your life you’re likely feeling the pinch.
It hasn’t necessarily affected me in terms of mortgage or job security but dang it if I cannot help feeling the pain at the pump. I drive 50 miles round trip every day to get to work. My gas mileage is fairly decent but it still takes 2 gallons of gas ( a little under at ~ 26-27 mpg) each day. It’s costing me $8 a day to get to work!!!
I realize that I could take the bus for 1/4 of that but I hate the bus (I did take it for two years) and the time it would add to my commute makes it an undesirable alternative.
Of course, it is also my choice to work away from home and I can make the choice to reevaluate that sometime. I could get a job closer to home. I could car pool. For now I’m just trying to see what happens. But it’s frustrating for sure.
I agree, the only areas I find it taxing are indirectly through oil and food prices increasing.
However, I’ve noticed those with little financial knowledge are actually in danger due to this credit crisis. If individuals do not understand the need for maintaining some assets, this overleveraged position is coming into question as credit is tightened.
Some may default on loans due to stricter standards or increased scrutinizing by the bank.
In addition, an *unmentionable* action, such as funding your credit card purchases through a personal loan to pay the minimum off your card each month may be hampered if you can no longer get this credit or a pay-day loan.
What am I doing about this? Praying for wisdom in helping my clients toward better financial positioning and value based finances.
Hi there, just found your blog. Love it! I have to say that I’ve noticed the credit crisis a lot. My weekly shop has gone up heaps. Just things like bread and milk cost a load more now (in the UK anyway).
I managed to get a mortgage a few months ago so I was quite lucky but I know people who have tried to get 100% and 95% mortgages recently and have been refused everywhere so they’re having to stay put. A few of my other friends who came out of fixed rate deals a few of months ago are really struggling too.
Good on you for managing to stay out of it all. I hope it stays that way
The new wave of foreclosures will start happening because the price of gas and food have gone up. People that were on the edge before are now over it. I think we are still going to see more foreclosures.
As A mortgage broker I can tell you the market is suffering a lot at the momment. Transactions on house buying down 50% on last year. Interest rates are touching 7% for 2 year fixes. Banks have lost so much money we are all going to suffer.