Mortgage crisis, causes of financial crisis in US and World

In 2008, there was very great financial crisis in the United States of America that spreated over Europe and Asia or the other financial centers of the world. The global financial crisis began from mortgage crisis in the United States of America. The crisis caused of some big companies closed down. Why did this happen?

The cause of the financial crisis was from the mortgage crisis, where greediness and careless in doing business crisis caused a chain of  crisis that and eventually swept the world.

As we know, the companies that ” Go Public” already have been forced to grow and develop in all sectors. Included the sectors of production, distribution, sales volume, advertising, marketing and the most important is the growth in earnings or profits. Hopefully the company’s profits can grow up to 20% per year. How does it run? it must be submitted in full to the CEO and the director. The CEO and his directors pressured to produce higher profits and greater for the company.

The owners of the company, namely the shareholders, generally do not want to know what and how the company operate. They do not want to know anything else, what they wanted are 2 things, specifically: the share price keep rise and rise and profits should keeps grow. Usually in USA, a public company stock is owned by thousands or hundreds owners. in order that shareholders concerned with matters pertaining to their operations, such as implaborers expand of factories and the distribution, advertising strategies and markating, and so on. For them, they have already paid CEOs and it team, and they just wanted the money hundreds foldedback.

The First question, why do they expect their stock prices rise? the answer is if one day that the shareholders sell their shares, they will get benefits and they’ll get higher price than the price at the first time they have bought.

The second question, why do they want the company profits rise? it relates to the dividends. If they do not sell their shares yet, each year they will get the profit (dividends) are more and more.

About how to make the stock prices keeps-rise, it’ll hand out to The CEO of the company. Does the CEO want to use this way or the other ways, there is no restrictions. Because there are law that oversee the workings of these CEOs, such as the company’s law, capital market’s law, tax’s law and the labor’s law, etc.

Maybe we will think, how much pressured or stress the CEOs who are required to think and develop the value of stocks and the profits of the companies in the same time because, even though it commonly in business, the compnaies could get profit or lost it.  But there are something strange here, because the CEOs sometimes do not feel pressured or being deadlined, because without any orders, these CEOs also want the stock price keeps rising and corporate profits keeps-rise year by year.

How could it be ? Because these CEOs do not want to lose their position at the company and they Also, if they are succeed grew the companies, they also will get a great bonus, generally percentage are calculated of the profits and growth obtained. Salaries and bonuses of CEOs which are got in big companies in USA may reach 100 times from the salary of George W. Bush.
does the big income able to make stress of CEOs?

What do  the shareholders expect and the CEO’s desire was the same, matched out. Therefore, all companies will be forced to develop and grow. If it’s not find a way, it must find another way. If the other way is not found, must be a new way. but if it will be hard to do willy nilly we must grab anyone’s way.if it couldn’t be? use the money to buy it. If the owner does not want to sell the way, do purchase a devious manner and take it by violent! Another term is “Hostile take Over”.

If you could not get it, too, use a strange way: ask the politicians to make the various regulations that make the company get the way. If the company keeps to grow and grow big, everyone will be pleasure. CEOs and directors are pleased to receive the bonus of up to US$ 50 million per year. The shareholders are also pleased because their wealth rise. the Goverment would be pleased because tax revenues will be grow up. Politicians also pleased because get the support of funding the sources. So, everyone would be pleased.

Thus the description of U.S. economic activity, especially the biggest business, which are controlled by capitalism, that, the fact is if controlled properly , positive impact on U.S. economic growth and prosperity of America’s Economic. this economic growing  causes all the people able to buy their daily needs. Refrigerator, TV, Cars, and Houses sold well. The more spent money to buy goods, the American economic moving ever forward again. Therefore, the USA requires a lot of stuffs, whole stuffs. If the Americans can not make it, for example, they can not make goods with cheap price, they just import its from China or Indonesia or other countries. And that’s what makes China can sell any goods to the USA and making China the country has foreign reserves with largest in the world.

By those ways the companies in the USA succeed to grow over than 60 years. This is part of the capitalist economy. USA with the prosperity and economic power and control over many global resources. However, it is still not enough yet. the wealthy should get wealth. The big bonus should be bumbbled up again. the grafhic of Profits keep rise and try to get the top grafhic the gigantic Companies, supprted to be the super giant but Those aren’t enough.

By the time everyone has bought a house, it shouldn’t be no longer a
company sells the house. Because the market of mortgage has been saturated (full), and all have had a house. However, because the principle of a company should keep – grow, in order that the company CEOs have to look for the ways to keep – seel houses and sales volume have to be more and more. If the person already has a house, then created a necessary, where pets like cats and dogs must have a home. And if their pets already have a home, then who would buy a house? because, if no one bought a house, certainly, the company’s growth will stop and not grow anymore. And it will impact the guarantor firm will not grow up? companies or manufacturers building equipment will also not getting any bigger? and how the banks can grow big? because the doctrine every company must grow and developed well.

Is it certainly confuse the CEOs?

How is the solution? There is a new way, and made by United states .
30 years ago, it was 1980, the United States government made a decision called “Deregulation Monetary Control”. the essence of This decisionis, in terms of mortgage loans, the real estate companies has allowed to use the variable interest rate. it means : be allowed to use extrainterest from the interest that have been defined certainly. The new regulations introduced 2 years later. Of course, this regulations a big opportunity for many business sectors, such as: real estate, banking, insurance, brokers, underwriters and so on. And these opportunities are actually utilized by the banking.

here the story goes on :

Years before the year 1925, the United States has Mortgage laws. It was the law of mortage for house possession. All Americans who have met certain requirements, can obtain a mortgage. For example like this: If the salary / income of a person has reached US$ 10,000 per year, then he can apply a mortgage to buy a house at a price of US$ 25,000. Monthly installments reachable enough for the mortgage term 30 years at 6% per year.

The developed countries , included Singapore, Generally, already have laws Mortgage. Lately, Dubai also has been the law of it’s own mortgage. Since the mortgage law has declared, sales of property in Dubai risen 55%. The law requires mortgage is a very strict criteria for a person to be able to obtain mortgages.

By the “new way”, in 1980, it’s opened opportunities to raise rates. Businesses related to mortgage grow again. The Banks got opportunity to catch extra interest. Banks became more aggressive, just same as the broker of property and other business-related mortgage.

However, “The new way” has been facing few obstacles, which turns out everyone has house So,the government made “the new way” again  by the government in 1986, called the determination of the Tax Reform. One of its content: mortgage buyer given less tax. it’salso valid for the purchase of another house. it meant that, even though it has a house, if you wanted to buy another house, it’s still be included in the facility.

In developed countries, if there is any tax relief will get incredible. In the developed countries are very high taxes. In fact, as in Swedish or Danish, person’s salary will get the tax up to 50 percent. as the impact, all the necessities of life such as school fees and health care are free. The future life are also guaranteed.

The tax Relief facilities increases the mortgage atmosphere business dramatically in 1990. And this passion real estate keep rise to the next 12 years. These mortgage loans are usually about US$ 150 billion per year increased sharply immediately twice tothe following year. Even the numbers keep rise a few years later and even in the 2004 reached almost USD 700 billion per year.

The term word of “mortgage” comes from the legal term in French. It means: The death of a pledge. This is quite different from home loans/ credit. In a mortgage, you get credit. Then, you have a house. The house that you submit to the appropriate credit. You may occupy it for a mortgage you have not paid off. Because the house is not yours, so bad mortgage payments (maybe you still has no money), the house you automatically can not be occupied. From the beginning there was the pledge that it is still not your house yet or never yet, So, when you do not pay the mortgage, the pledge was considered dead. Thus, you should go away from that house

Lately fact, the evidently is is the “new way” is a graveyard for supergiant companies. Several major investment banking firms such as Lehman Brothers collapsed and closed down because of it. How can it has happened? whether related bankruptcy investment banking firm with bad credit mortgage?

Apparently, the great transaction had happened since 1990 to 2004 did not only caused by the existence of a tax break. “The financial businessman” saw the various facilities such tax as an opportunity for further grow and also increased profits. Communities keep continue to be overwhelmed by the advertising facility offering housing loans (mortgage).  lender’s matcmakers met with a massive supply of house buyers, agreed. As a result, house prices and land and other property kept creeping up moreover the bank rate.

As the result, not only the banks are getting smarter, the houseowners are also more intelligent. Houseowners whom had already paid off the house and they  remortgage program again to buy the next house. For those who do not meet the requirements of any mortgage, be allowed to get mortgage loans hoped that the price purchased and will keep continue and ascend up in the future. If one time, the money borrower can not pay the credit, the bank assumes that they are still lucky, because the house can be confiscated and resold for the higher price. So, the bank will not afraid and hesitation in giving this mortgage.

Actually, the bank has a strict rules and limit as stipulated in the banking laws. But there is always ways for businessman the New way is the Bank can work with ‘other banks’ which we call it as investment banking.

A question will occure out ” Does the investment banking is a bank”?
the answer is “no”. It is only financial company that only “similar” to the bank. In fact investment banking is more free than the bank and has not bound by the bank rules. Investment banking can do a lot of financial transactions such as: accepting a variety of “deposits” from the owners of money, loan the money, borrow money, buy companies shares, be a guarantor, buying house, selling private house , and may do something that people can’t do . Even can do other things that can not be done by the bank. Lehman Brothers, Bear Stern, Fanny Mae and many others are the kind of corporate investment banking firms.

The Banking investment companies’s Flexibility and freedom make it more aggressive in giving loans without any limitation provisions at once.The Investment banking can buy a company and sold it at any time. If they has not sufficient found, they also can apply of found   to anyone, other banks or to fellow investment banking Or to the rich people who hava lot of money, known as “personal banking”.

The Investment banking salles are very aggressive offers loan facility. formerly, the only people who have fulfilled certain requirements (prime) which can obtain a mortgage, then in fact the people that are less qualified (sub-prime) are stimulated to take a mortgage.
In the United States, all citizens have a “rating”. High or low a rating score determined by how much income and wasteful lifestyle the person are. The person who called prime is the person whom has a rating over 600 ( Six up ).
Every year people can estimate their own, ratings go up or down.

When rating  has reached 600, he will able to have a house through a mortgage program. If his rating has not reached 600 yet, then he must strive to reach 600. The Way are scrabbled up and keep to work hard so that his salary increases and much savings. Thus i also decrease to spend for nothing so the income getting up then expenditures (spending money).

However, as the explaination above, the company must growing up and profits have increased, then the market housing (potential customers) were made as like bubbles. How? for example, everyone whom the rating is still at sub-prime 500 has already offered a mortgage. The assumption, is if the borrower fails to pay or stopped to pay the house could be confiscationed and  After that the house can be resold at the highest price than the value of loan for the  the assumption, house and land prices will chase the top charge year by yea and will never decrease.

But the real fact, the Long period calculations is not exactly correct Because, in less than 10 years, many costumers have defaulted or failed to pay. The amount of of the are increased up . As the result, the house was confiscated also increased up. Amount of The house sold are even more and caused of many people sold their houses, then as the consequency are the house prices went down. Because the house prices are declining, meaning that the home loan did’t match with the value of loans that the company has been issued And it means that more failed to pay.

The Bank or investment banking whom provided mortgage loans has also been pledged the houses to a bank or other investment banking. The others had pledged to the others agai, and Another one would do the same case. One collapsed, will make  the others collapsed. Like dominoes card in a row set. One fell upon another card, collapse all.

How many hundred thousand or a million houses are included in the mortgage crisis? There is No data yet.but the money has it. it was about 5 trillion dollars. if The government of America apply about 700 million dollar, it must have there will a question occured if the found couldn’t solve the case. should it refound about 700 milllion dolar anymore? and more 700 millon dolar ?

There was an issue, The millionaire Robert T Kiyosaki also affected by this mortgage crisis. Because his business system is borrowing the  money to the bank, then buy a house to be rent. After that, the house sold twice fold as itself price

With this mortgage crisis, more peope sold the house, so house prices wentdown, because the just litle amount of people  who could afford to buy a house. This means that more supply than demand.

Does the mortgage and financial crisis in America will have a significant influence with indonesia’s economy?. It seemed not, at least the effects will not be experienced by Singapore, Hong Kong, or China. Singapore and Hong Kong are much affected because the two countries had been one of the operation of the gigantic financial of the world. Meanwhile, China will be affect because the U.S. people’s purchasing power would be decreased, which means that many  China’s products that couldn’t be sent in a big scale to the United State of America but thank you for Heavenly Father, because we still able to plat severals produce palnts such as corn

This article above is rewritten by, Edited By Bro Rajawali, original articles written by: Dahlan Iskan – CEO Java Pos

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