From: Hobart, Tasmania, Australia
I keep a keen eye on financial stuff and I tried to tell people it was coming but nobody likes the bearer of bad economic tidings. This is an Australian investigative journalism program from over a year ago that predicted a lot of this...
I'm not sure if it's accessible from overseas.
The blurb makes eerie reading now.
"When the US sneezes the rest of the world gets the cold."
Last month an unfamiliar expression appeared in the Australia media. A "subprime mortgage crisis" was unfolding in the United States. Homeowners across America were defaulting on loan payments and economists warned of major financial fallout occurring anywhere from Paris to Beijing to Melbourne. But why should a foreclosure in Cleveland affect a hedge fund in Sydney?
As Four Corners reports, Australia, along with the rest of the world, is at risk of a virulent economic virus thanks to financial globalisation where everything is interconnected through a sophisticated form of pass the parcel. And even more alarmingly, no-one knows just how bad it might get.
"A perfect storm."
Reporter Paul Barry explains how the subprime market was created through a unique set of circumstances beginning with the fallout from September 11. The program charts the rise of easy credit to the point where mortgage brokers were running out of customers. Enter the subprime loan, the loan you could get when, as one real estate agent tells Four Corners, the only criterion was to see if the client was breathing.
The program reveals how predatory lenders were unregulated and often unscrupulous, targeting people they knew couldn’t pay. The broker would make the loan, take a fat commission, and pass on the responsibility as quickly as possible. One lawyer tells the program: "It’s American capitalism at its worst."
"The last one out of Cleveland please turn off the lights."
A 'market correction' is a nice economic expression that goes nowhere near capturing the heartbreaking human cost of this financial disaster. This year and the next more than two million American families will lose their homes. Four Corners visited Cleveland, Ohio, where the streets are lined with empty houses, dead gardens and demolition notices pinned to the front doors. One in 20 homes are now in foreclosure. Paul Barry talks with home owners facing eviction and the lawyers trying to save them.
"The crisis is just beginning."
US economists are warning that the worst may still be to come. They are even talking about the "R" word: recession. And one leading financial expert warns if the US slips into recession: "I don’t think anybody anywhere in the world is going to be immune. It’s a question of degree rather than whether they’re affected."
I also read that local governments are having to kill mosquitoes in the pools of all the abandoned houses in some places to keep the threat of disease down.
I'm glad the Australian governments have resisted the demands from the "free-market fundamentalists" to slash the regulation of our financial system. You simply couldn't get a subprime loan here and so the banks are reasonably unaffected.
Mainly due to the resources boom, our economy has also been very strong for ages and we've got basically no government debt and have a budget surplus. That, combined with the anticipated continued strong growth in our key export markets of China and India mean that we should be able to ride this out reasonably well. The government has a pretty big war-chest to pump cash into the economy through infrastructure projects and the like. Also, because until this sucker hit our biggest problem was keeping a lid on inflation due to growth, interest rates are quite high. That means there's plenty of scope to reduce them to stimulate the economy too. Most economists expect economic growth here to continue but it will be slashed.
Some of this is good management, some is luck. One major problem we've got is a housing bubble. Prices are around 2-3 times the long-run average and there is going to be a major correction. Household debt is at historically high levels too, mainly because people saw the value of their house go through the roof and thought they were rich.
I know a lot of American economists are angry that such slack regulation occurred there. As usual it's the little guy that gets the shaft when the greedy fat-cats screw it up. They've been squirming in the spotlight lately but that doesn't get people's houses back.