Foreclosures Leading To Bank Failures

Posted in Foreclosure, September 30th, 2008 |

Wall Street can now relax. It is the foreclosures that are leading to bank failures. But Congress too will be siding with the Bush administration to give the green signal to the bail out plan involving $700 billion taxpayer’s money. This is the worst crisis since the Great Depression. Both parties felt the urgent need to stabilize the market. Bailing the jumbo financial institutions is expected to act as a remedy for the virulent spread of foreclosures that is creating havoc in the market.

The Bill will go through the House and the Senate. The speaker of the House Nancy Pelosi as well as Treasury Secretary Henry Paulson is optimistic that the bill will sail through without any hitch.

The credit crunch emanating from the foreclosure crisis in USA has crossed over the Atlantic to touch UK. The government here is ready to nationalize mortgage lender Bradford & Bingley. This would be the second instance of nationalization of a bank after Northern Rock last February.

IN USA the Federal Reserve has already saved Freddie Mac and Fannie Mae. AIG had to be taken over. Earlier this year J.P. Morgan Chase bought over Bear Sterns of $2.3 billion. Lately Lehman Brothers has filed for bankruptcy. 119-year-old Washington Mutual was taken over by the regulators. J.P. Morgan purchased it also. Washington Mutual is symptomatic of the biggest failure in the history of USA banking.

The situation has turned so alarming that banks all over the world including that in Japan have rallied in support by injecting dollars counting to billions into the market. The stock markets had gone into a downward tizzy following the foreclosure related crisis. Bank of England will push in an extra $10 billion. The total amount of help will amount to $290 billion.

The argument by experts is that this major help line will pep up the confidence of investors although none are quite sure about how far the system will be corrected.
The debacle started with the flooding of the market with sub-prime mortgages without any control or rules. The idea was laudable – it was meant for those who did not have access to prime loans. But the main objective was to lay hands on property anyhow, slice it into securities and sell these globally. But when thousands of borrowers failed to pay their mortgages houses began to be foreclosed like ninepins. The nightmare of credit crunch began.