Archive for April, 2008
Yesterday we were presented with a report that ut a glossy shine on the subprime crisis. In part – and the main emphasis on the report – was that the worst was over for the subprime crisis. We questioned the validity of the report, seen nationally and on Google News. Today, we are told the opposite – “About half of recent subprime and Alt-A borrowers may soon owe more on their mortgages than their houses are worth or hold minimal equity, putting $800 billion of debt at greater risk of default, according to Barclays Capital.”
Citigroup reported Friday a first-quarter net loss of 5.1 billion dollars, hurt by at least 12 billion dollars in write-downs amid soured subprime investments, and said it would cut an additional 9,000 jobs. Will Citigroup look for reasons to raise credit card rates, as we see with other banks involved with subprime? Although Citigroup has some cards with rates at 1.99 and 3.99 percent, we do not expect Citigroup to react like HSBC has in many cases. HSBC often raised credit card rates to 29 percent with no explanation other than “business reasons.” Of course Citigroup will raise rates if the cardholder misses a payment.
If the family budget is already strained or an adjustable rate mortgage increase is just around the corner a realistic view of reality is required. What many people do not realize, and many homeowners find alarming, is that a refinance into an ARM only saved about $100 per month on average. After a reset the home is basically lost. It is tragic. But what about that budget if you decide to work 2 jobs, or supplement your income in another way? Let look at the economy for starters:
George Soros, the hedge fund legend and billionaire philanthropist, said on Wednesday the subprime mortgage crisis is likely to cause global losses of over $1 trillion. The International Monetary Fund (IMF) issued a similar guess, and Soros seems to agree with the assessment. What started out as an experiment in the United States certainly blew up all over the world. The net impact of lowering rates to help the financial sector has weakened the dollar and is already showing at the gas pumps. High diesel fuel costs will soon be passed to the consumer as the mess spreads like a wildfire.