How You Can Profit From a Failing Economy

Investment article

How You Can Profit From a Failing Economy by Simon P Smith

Unless you have been living under a rock for the past few months you will no doubt have noticed the economy and financial markets are failing.
A Forcast Event

Many financial strategist have been discussing this for quite some time. Robert Kiyosaki even wrote a book about it titled "Prophecy". Written in 2002 it discusses why the biggest stock market crash in history is still coming and how you can prepare yourself and profit from it.

Now it is here we can no longer shrug it off as some silly "doom and gloom" view… .

If it is going to be as bad as the gloom and doom merchants in the media are wanting us to belive most people haven't felt the pinch yet. Any financial strain you've felt so far is just the tip of the iceberg compared to what's headed our way. And the biggest impact will be on the middle class around Christmas.

Understandably, many people are scared as their financial future is far from being secure. Having said that it is not the time to be stuffing your money into your mattress or hiding under the bed.

You shouldn't do that, nor should you panic. The regulators around the world are working hard and taking swift action to bring stability to the market. The best thing you can do is ride out the short-term ups and downs with just a few prudent adjustments where necessary until it all shakes out.

The Smart People are Planning Their Future

Don't get caught in what I call the "herd mentality". A little rule I have used myself when I find myself in a tight spot is ask myself "What is the herd doing?" And then do the exact opposite. Now is the time to take a common sense approach. Following are a few tips for a failing economy you may find useful:-

What You Shouldn't Do

* Bail out. Right now everyone is running around dumping stocks or equity mutual funds now. This is silly as the values are especially low and it is simply guaranteeing that you'll turn paper losses into real ones. Even if there's more downside to come, staying on course often pays off during times of economic uncertainty. You'll only realise a loss if you sell. What happens after a recession? A Boom. What happens after the sun sets in the west? It rises in the east.

* Stop saving. Those regular contributions you've been making to your savings or retirement accounts are an important part of good financial discipline, and there's no reason to stop them now. The strategy of dollar-cost averaging your investments-making periodic contributions to your accounts, regardless of where the market is heading is still good advice.

* Speculate. While lower prices for investments create opportunities, betting on the markets can easily get you into trouble, especially with the wild swings we're seeing now. Small, measured investments are usually better than large, hasty ones intended to make a quick killing. Be especially wary if you get tips from e-mail, the Internet, or elsewhere for certain stocks, commodities, and other "once-in-a-lifetime" opportunities

* Take on new debt. Be careful about acquiring new debt. Economic downturns can affect job stability and investment income, making it difficult to determine how much debt you can handle.If you must borrow, say, to put a child through college or make an emergency repair to your home, be doubly sure that you've examined all the options and risks, especially if you're planning to use the equity in your home

* Stop living. Although these times demand extra caution, there's such a thing as over-reacting. Whether it's buying gifts for the holidays or taking your family on vacation, life has to go on. And some cutbacks can have negative consequences for your wallet, such as putting off maintenance for your house or car or canceling insurance policies. So don't overreact. Instead reflect carefully and, where necessary, adjust.

What You Should Do

* Get your finances in order. There's never been a better time to make a budget and start paying down your debt, credit card and otherwise

* Rethink your plans to retire. If you're expecting to retire soon, consider holding off for a while, if possible, until things calm down. That will give you time to reassess and, if need be, modify your plans

* Speak with your financial adviser. With end-of-the-year tax planning an annual ritual, now is a good time to make an appointment with your tax adviser no matter what the economic outlook. He or she may have some advice on how to tweak your finances as you ride out the current storm.

* Consider a Plan B. Instead of being scared, I'm encouraging you to look at starting or ramping up your Plan B. It's never been more important than it is right now to re-plan how you make your money.

You need to do something different to create a stable financial future for yourself. One of the easiest ways to to this is to have your own home based business.

Now is the time to take action and learn how to build your own home based business… to apply yourself… to work smarter not harder … to find the time to get it done.

So what's the smartest thing a person can do to build their own home based business, or any small business in this economy-successfully, and without a lot of risk?

Network Marketing has been hailed by many as the ideal home based business. Network Marketing is the best home based business opportunity particularly if you find a mentor in the network marketing business of your choice. This is a great short cut to home based business success as the mentor has already successfully travelled the road you want to travel. Consider this network marketing mentor option.



About the Author
Simon Smith has been working in the financial services industry for over 20 years and building his fortune in the Network Marketing Industry. If you are ready to get out of the Rat Race pick up your free report at Simons Network Marketing Mentor Blog

How the Subprime Scandal Started

Investment article

How the Subprime Scandal Started by Danny Schechter

According to a Senate report, the starting point of this crisis was in 1997, during the reign of the Clinton Administration. It was then that a period of housing price appreciation began - increasing by nearly 85% until 2006. Home prices jumped by 124%. This was unusual, having occurred only once before in American history, right after World War II.
Soon the housing sector was driving the American economy. Within the next few years, seven million families bought homes with subprime loans.

Homeowners who may have been cash poor, became house rich, by dipping into inflating home equity either by refinancing or taking out low-cost equity loans. As this business boomed, underwriting standards began to "deteriorate." The banks and other lenders had found a new way to make money - and fast. These loans helped homeowners stave off foreclosures.

They were made possible by deregulation lobbied for by financial institutions, credit card companies, and homebuilders, the industries most likely to benefit.

As John Atlas and Peter Dreier explain in the American Prospect, they won support from the Democrats and Republicans under the cover of the "Reagan Revolution" to undercut reforms made in the 1970s.

In the 1970s, when community groups discovered that lenders and the FHA were engaged in systematic racial discrimination against minority consumers and neighborhoods - a practice called "redlining" - they mobilized and got Congress, led by Wisconsin Senator William Proxmire, to adopt the Community Reinvestment Act and the Home Mortgage Disclosure Act, which together have significantly reduced racial disparities in lending. But by the early 1980s, the lending industry used its political clout to push back against government regulation.

This was also the period of major bank consolidation through mergers and the S&L crisis, which saw the closures of scores of banks and major losses because of illegal practices including mortgage lending.

A few bankers were prosecuted but most were bailed out by the Congress. As a blog named the Last Hurrah explained: "Without understanding cause, or the reason for these plain Jane savings organizations in sustaining middle and working class home ownership - Congress just bailed out the lenders who had the wit to reorganize, and let it go at that. Essentially they financed the next bump in housing inflation, whether it be in inflated prices for existing homes, speculation in lots for tear-downs in good areas, or McMansion housing far from jobs and culture in the exurbs, that requires vast investment in infrastructure on the part of existing home owners and the states."

Interest rate ceilings imposed by state usury laws dating from "reforms" in the 1980s were then rolled back. The lenders understood that these changes meant that now they could target a large potential market who wanted home ownership but could not qualify. And they could charge them high fees and interest.

The subprime loan was crafted for this community and promoted as a reform, a positive way for minorities to become part of the American Dream of homeownership for all. In this period, the Bush administration was hyping the promise of the "ownership society."

(Now, given the foreclosure rate, ownership may actually decline under his "watch.")

Most subprime borrowers were sold loans called "2/28" and "3/27" hybrid adjustable rate mortgages (ARMs). These loans typically had a low fixed interest rate - called a "teaser rate "by the industry - but only applicable during the first two-year period. After two years, the rate is reset every six months based on an interest-rate benchmark. In many cases, payments rose 30%, which made them un-affordable to people whose wages and income were barely rising. By 2004, 90 percent of the subprime loans had these ARMs.

Bear in mind also that the most vulnerable and hence "higher risk" subprime borrowers - many with low FICO credit scores and poor credit histories - were charged substantially higher interest rates and fees than other borrowers. They were more likely to be subject to prepayment penalties, which make it costly to refinance loans. It was known in the industry that these are the borrowers who are most likely to default or become delinquent in payments and face foreclosure.

No one can fully explain why housing prices went up so quickly either, leaving the door open to explanations based on deceptive and fraudulent practices such as inflated appraisals.

Quickly, so-called "intermediaries," unregulated and often unscrupulous mortgage brokers, hustled their way into the housing market and quickly dominated, taking a vast market share by a variety of tactics ranging from deceptive advertising to block-by-block solicitations to get people to buy and sell, always promising more than they can deliver.

These efforts were buttressed by large-scale advertising campaigns for firms like DiTech - which used an actor/comedian known for his appearances on Saturday Night Live - to hype the mortgages being backed by the General Motors Acceptance Corporation. (For a while the car company was making more on loans than selling automobiles.) Online lenders then joined the carnival of competition with more ads. Media companies raked in several billion from this advertising, which provided little incentive to expose these practices.

Speculators fielded street teams known as "birddogs," rewarded for hunting down and signing up prospects. Abusive, illegal, and predatory practices were common. They enticed. They seduced, and in some cases, they threatened. I was told by a mortgage professional in the know that muscle was used, and that people were murdered in property battles.

According to the Joint Economic Report, "For 2006, Inside Mortgage Finance estimates that 63.3 percent of all subprime originations came through brokers, with 19.4 percent coming through retail channels, and the remaining 17.4 percent through correspondent lenders. Their data show the broker share increasing from 2003 through 2006."

These companies were not regulated and did not come under safety and soundness regulations. The percentage of subprime mortgage securitized rose rapidly after 2001, reaching a peak value of more than 81 percent in 2005.

Underscore that: 81%!

As housing sales boomed, lenders just dumped their traditional criteria for originating loans. The Senate later found: "The share of loans originated for borrowers unable to verify information about employment, income or other credit-related information ('low-documentation' or 'no documentation' loans) jumped from more than 28 percent to more than 50 percent. The share of ARM originations on which borrowers paid interest only, with nothing going to repay principal, increased from zero to more than 22 percent. Over this period the share of subprime ARMs multiplied dramatically that were originated."



About the Author
Danny Schechter edits Mediachannel. He was an Emmy Award winning producer for ABC News, director of the film In Debt We Trust and author of the new book: PLUNDER: Investigating Our Economic Calamity.

Investment article