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Friday, October 10, 2008
World Markets in Freefall
Matt Egan
FOXBusiness
World markets continued to spiral downward overnight, with Japan's Nikkei 225 suffering its worst percentage drop since the crash of 1987.
Efforts by central bankers and governments around the world have failed to stop the bleeding in global markets. Reports that the U.S. is considering insuring all bank deposits and backing billions of dollars of bank debt have similarly been unable to halt the selloffs.
The markets plunged on fears the worst financial crisis in the U.S. since the Great Depression will help send the global economy into a recession.
The bleeding was most evident in Asia, where the Nikkei 225 index plummeted 881.06 points, or 9.6%, to 8276.43 in its worst one-day percentage loss since Black Monday in October of 1987 when the Dow plunged 23%. Friday's losses pushed the benchmark Japanese index to its lowest level since May 2003.
Hong Kong's Hang Senx Index didn't fare much better, closing down 1146.37 points, or 7.19%, to 14796.87.
Europe continues to feel the pain, with London's FTSE 100 suffering its worst day since Black Monday and falling below the 4000 level for the first time since 2003. The index closed down 381.74 points, or 8.85%, to 3932.06.
The Dow Jones Euro Stoxx 50 ended down 207.17 points, or 7.88%, to 2424.87 while France's CAC 40 Index slid 266.21 points, or 7.73%, to 3176.49. Germany's DAX Index plunged nearly as much, closing down 342.69 points, or 7.01%, to 4544.31.
The carnage around the world weighed heavily in the U.S. as the Dow Jones Industrial Average plunged as much as 700 points on Friday and slid below the 8000 level for the first time since April 2003.
The freefalling markets have put enormous pressure on world leaders, many of whom are due to huddle in Washington on Friday to come to a global solution to the ailing financial systems.
President Bush addressed the U.S. Friday morning on the credit crisis, saying: “Anxiety can feed anxiety and that can make it hard to see all that is being done to solve the problem."
FOX Translator
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If you¿re like the vast majority of the population, buying a home is the largest personal investment you will ever make. You're buying something that¿s many times your yearly salary with the intention of holding onto that home for many years.
The bank you're going to get the money from to buy that home knows that, too. And if you're going to get a mortgage on a home, the bank wants to know how you're going to pay for said house.
Usually, you give a lot of paperwork to the bank, so the bank can tell if you're able to afford the house or not. You give them bank statements, credit card statements, letters from your employer stating your salary, tax returns, etc.
But, what happens if you may not be the perfect candidate for the home of your dreams? Or, you're buying too much home (the bank thinks you can afford a $200,000 home, you want a $230,000 home). Or, you don't have the money for a down payment. Or, you haven't paid your bills on time in the past. Or, the documents of how you make your salary are not 100% available.
Enter the subprime mortgage. Subprime mortgages are loans given by banks to people who may fall under any one of those above conditions, or others. Why would anyone want a subprime mortgage? Well, homebuyers get subprime mortgages because they get to buy the home they want. Banks give subprime mortgages because they can charge people more money for that mortgage. Remember, the difference in interest rates on a $200,000 or $300,000 home can mean the difference between hundreds of dollars in interest payments.
Still there¿s risk for both the person getting the mortgage and the bank granting it. When the playbook works, the value of the house rises. So, even if Joe Q. Badcredit couldn't afford the house he bought in 2001, at last resort Joe or the bank could sell the home, make a bundle off its increased value, and the bank could get its money back.
The playbook goes out the window, though, when home prices don't increase. Then homeowners run the risk of defaulting and banks lose money. At its worst, homeowners can lose their houses.
If you¿re in the market for a home, and the banker says you qualify for a subprime mortgage, it probably means you need to provide more documentation of how you¿re going to pay for that house. Or, you may be buying too much home. Talk with your banker about why you qualify for a subprime mortgage, and try to fix it.
