01.17.08
Not Just Sub-Prime
A Yahoo article points out that even homeowners with high incomes and good credit are losing their homes.
(These articles are often available for a limited time period, so it may be gone if you are not reading this in early 2008.)
The news to date portrays the mortgage collapse as being a problem with weak "sub-prime" loans, which are high-rate loans made to buyers who would not otherwise qualify for loans. We are starting to see that it is not just people with lower incomes and marginal credit that are experiencing difficulty making their payments.
The article quotes a real estate salesperson as saying that many people in a certain wealthy neighborhood borrowed too much, trying to look successful. This article supports one of the conclusions of a study published in the Boston Review, namely that much of Americans’ debt load is due to higher housing costs.
Small businesses, of course, are in danger. Even though big financial companies caused the crisis by their actions, the government will intervene to protect them from the consequences under the guise of stabilizing the economy. We know that they won’t act to protect smaller businesses. If you are a business owner or manager, I would recommend that you start reeling in your receivables and slashing credit offered now. If all of your accounts are held in one bank, I would encourage you to split them between two or three banks, so that you are less likely to be closed by a bank failure.
You should also look into establishing relationships with locally-owned suppliers, particularly those who actually produce (make, mine, or grow) the products they supply. If the Chinese were to decide one day to stop financing our economy, imported products might become scarce or extremely expensive.
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