US economic crisis

What has happened is that people who cannot afford mortgage payments were given mortgages. (The mortage brokers did not demand large enough down payments to ensure that the monthly payments were affordable.) The mortgages were bought by a series of investment companies in a long chain of companies now well removed from the original loans.

Building homes is good for the economy. Owning a home is better than renting in that you put money into equity in your homes. The equity is based on the down payment plus the amount you can pay down. The problem, of course, is that the home owner is paying interest on the loan (the profits for the investment companies that hold the loans) at the same time.

The mortgages were secured by the homes themselves. If the mortgagees defaulted, then the mortgage lenders take back the homes. Well, sure enough, many, many of the home owners defaulted on the homes - but in such numbers that there was a glut on the market and the value of the homes went down as mortgage holders tried to sell the homes to get back their money.

Investments are considered long-term and YOUR investments must be considered to be long-term. The problem with this glut is that everyone is panicking and trying to sell both stocks and home at the same time. You have to sit on your holdings. They will come back. We have watched our investments and the market will eventually self-correct. This is the advice our investment counsellor tell us. You have to look long-term, this is only a short term blip on the radar. It is silly to sell now, both property and stocks, as the investment accrues over the long term.

I think there were massive frauds occurred in the beginning as the loans were made to those who were doomed to default on their homes. There is a lot to maintaining a home. I say sit tight. The impact has been world-wide, here in Canada our portfolio has gone down in value - but this, too, is short-term and only on paper. We will sit on it and eventually it will accrue more value.

The current bear market started in August of 2007. The world economy has slowed, but is not in a true recession. There are signs that it is recovering and most Canadian and US stocks are demonstrating this fact. It is said that the US market is rebounding, as people like Warren Buffet demonstrate confidence in the long-term nature of economics by buying Goldman Sachs.

My hope is that the CEOs will be fired, and the $700 billion will go to those who have lost homes, not stock values, which will increase later. I hope that the CEOs involved will not get their bonuses and your government will ensure that those who screwed up will not benefit from more cash.

So hang in there - be tough and wait it out. This, too, shall pass!
/my two cents worth!