Times are tough out there and many people are hurting right now.
If you want to understand what got us in this mess read on, I’ll explain.
When you and I want to buy a home, we usually go to a bank and get a loan.
Let’s say your loan is at 6% annual interest. The bank sells the loan to bigger Wall Street type institutions and keeps a small fee for originating the loan.
Now these institutions bundle these mortgage loans in batches of $100 million, and sell them to even bigger institutions like hedge funds, retirement funds, etc., and they keep a small fee for that. At the end, the bigger institution may receive a 4% return on their money, while the middle men get a smaller fee, as they no longer are holding the mortgage. They basically get paid a commission for their involvement. And the more loans they process, the more money they make, with almost no risk.
Herein lies the problem: When the homeowner can’t afford to make the payments (because they never should have gotten loans as big as they did in the first place) all the institutions and the banks don’t get paid. This causes a cash crunch, which now extends to every person and business on the planet that isn’t prepared for a downturn in the economy.
The government steps in and buys all the “bad” in-default mortgages from the institutions in hopes that it will free up their cash. This is done so they’ll start lending to homeowners and businesses again, so it can be business as usual. Unfortunately, this is a temporary fix.
We must get back to lending people money based on their true ability to pay it back, and not based on the hopes and dreams that the real estate market or stock market will continue to go up without a downturn. It’s never happened before and it’s not going to start now.
With this said, what can you do now to make sure you stay strong and thrive in this market? You must understand that if you are focusing on the negative aspect of what is happening in the market and the economy, you cannot be focusing on how to thrive in these times.
More millionaires will be made in the next two years than in the last ten, and you too can learn how to thrive despite the economy.
It’s those who learn how to think and act differently who will prosper. To learn more about how to take charge of your thinking, check out my FREE guide below.