Markets

THE INFLUENCE OF GLOBAL FINANCIAL CRISIS ON FINANCIAL MARKETS

Massive reduction and liquid problems of credit raiting in banks (for the first time in (Northern Rock) in April and May 2007 and since 2005, the range of problems such as the results of slump in real estate, influence on devaluation bank assets and manifestation of bankruptive effect on a number of banks have reached crisis point by September 2008.

Financial sector was considerably damaged by unprecedented growth of prices that significantly declined after eliciting financial crisis and credit restriction.

In the structure of consumption, forced high cost made a negative influence on the broad masses of population’s savings and accordingly on the size of investments, also it caused the rise of cost price. therefore, demands decreased because of two factors.(second one wich was partially formed by the influence of the first one is connected to the reduction of corporations winning and the slump on their bonds). In 2007 for the purpose of reduction in the price of oil, concrete non-co-ordination experiment by the central banks of separate countries, in the usage of money credit regulation in currency rates, considering taxation balance sheet. On the background of multidimensional, different priorities and difficulties, the problems were mostly revealed in the difference of interest rates. The rise in oil price, must have firstly been reflected in the USA $ purchasing capacity, but in a number of countries, all over the world, oil import (reflected on money) when in deals, it is invested in USA $ , it raised the demands on USA $ currency and conditioned the devaluation on Japanese yen, euro and pound sterling. For the beginning of reduction in oil price, financial crisis had already been from the USA, withal president election in the USA created an atmosphere for the better future changing. Currently, the countries all over the world, cut main interest rates and accordingly the difference among them is decreasing.

Securities market has significantly been damaged by the devaluation of assets of special companies, established by banks for the purpose of credit securitization. (SPV) assets include commercial debt obligations (CDO) namely, in this case, mostly mortgage credit obligations (CMO), that represent one of the varieties of obligations, provided jointly with active bond securities (ABS) and mortgage bond securities. This real pyramid, in which every following, next level securities were partially provided with lower level securities, but one of the providing means for MBS was corresponding real estate; Herewith, the partial price cut for real estate depreciate all kinds of securities.

WHAT IS HAPPENING IN WALL-STREET? Together with banks, those who can’t cope with the loss counting caused by subprime credits and giving bonuses to are blamed by the experts of financial centres for crisis, the offenders are so called “quants” in Wall Street and the world’s main financial centres. It is difficult to judge the point from only one side, current events are adequate to the saying “fish in troubled water”. On the one hand we can’t blame financial institute for aggressive crediting to maintain the market share, if it is prompted by positive expectation, but only in the case of legal-regulative normatives; just these regulations must not have given the opportunity to the banks and other financial subjects to behave so irresponsibly and indecorously towards the depositors and debtors’ funds (or it would be much more correct to say that, they shouldn’t have done it in this way). As the millionaire punters do, in the casinos of Monte Carlo. Existed frames of regulation (such as regulative normatives, namely, in the ratio of risk assets to the capital coefficients, liquid normatives of reserve demands, limits of open currency positions and others from the arguments of formal protection) do not or cannot correspond to the new methods of risk controlling, development of credit derivatives and expansion of out balance operations. Herewith, the bonus compensation, of employees, that is actively used as a repayment scheme by western financial institutes (obviously, we do not mean only brokerage houses). This increases the interest of agents in the growth of deals in size and also will rise the interest conflict, when operation offers the agent, the growth of bonus payments, but in reality it threatens the principal with potential loss.

Now, let’s go back again with “quants” and their mathematical methods, that is somehow based on the exact science, but resembles sophistic resistances of high mathematics, that is e.g. connected to the correlation of two inspirational functions or to one and the same number, that is the result of again two functions correlation.

It is paradoxic, but just such details made us move from the science, constructed on elementary basis to the most complicated and the most common concepts and dichotomy of time discreteness. (The last one is universally acknowledged in philosophy). It sounds again paradoxic, but wisdom is in simplicity and according to Georgian writer Ilia Chavchavadze, there are no small and big miracles. Sophistical models, that use multileveled and multivariational methods of analysis, often lose the focus and their usage in controlling assets and obligations, creates it self the new origin of risk. Besides, most of these models are far from elementary basis and correspondingly the results of analysis are difficult to be apprehended and sometimes even unessential. It must be said that, during the last several years, the programmes of financial management are available through the internet and the providers try to advertise their products by means of difficult multidimensional scheme annotation and incomplete promo versions; amongst, there are lots of facts of amateurish creativeness. Sometimes the part of unqualified managers follow Uindly and use these computer systems with confidence. Besides incorrect decisions and problems, we mustn’t forget the problem of villanios and indecorous act of managers and generally the staff. It is important to consider the fact of misinforming the shareholders and markets by means of asymmetric information to get the desirable aim. Recently, this kind of incident happened to Societe Generalr after it revealed that, the management had executed a series of “elaborate, fictitious transactions” in 2008, in the hope of covering this problem from other accounts and after E 5 billion fraud that had lately been informed to stock exchange and shifted the blame on employee. The fact that the sums are so large, gives an indication of just how leveraged everything is today and how volatile equality positions are – conclusions are up to the reader.

CAUSE AND EFFECTIVE ASPECTS OF CRISIS. And still, concretely, what is a main virus, that developed immunodeficite syndrome and collapsed all the economy and its vital financial system? Only separate aspects can be shown in connection with this problem and only on the basis of partially revealed diagnosis of symptoms. In accordance with, if what causes and effects of problems we connect to each-other and discuss more deeply. The rest of the aspects will be presented comperatively in a narrow sense or in other worlds, we can’t manage to reinstate the reality of cause and effective problems completely. So far, it is beyond human mind to imagine more than three-dimention complex sphere. It is theoretically proved and is implemented in the risk evaluation and computer models and system controlling. The irrelevant quality of unequal confidence of financial managers as well as ordinary people, towards the not-fully completed products of cybernetics and also the most important post economic virtual illusions of the outgrowth of scientific-technological revolution simulational computer models of financial, or other risk taking portfolio management, radically changed the cognition of reality, attitude towards risk, future realizations and they turned into the main provocative factors in the ruling process of unnatural approaches of interrelations and scale-proportions.

It is really difficult to define for the first time, what was the reason for sacrifing the functioning of billions of dollars worth securities – global financial crisis or general economic problems. The tendency of vector in these interactions will be manifested according to what problems will be discussed and at what level or in other words, the direction of this vector is changing in the dynamics of crisis development.

The problems of credit raitings and liquidation in the bank-credit organizations were almost less before the crisis revealing, not because of the fact that credit risks were not increased, but they were simply shifted in outbalance accounts. The reason is one sided – as increased risk factor not to have been used in calculation of assets, according to the risks of regulation demands. Instead of risk hiding and debuting liabilities, for the purpose of attracting liquid money flows, the usage of security and credit derivatives are cursedly effective, though regulators’ reaction found out to be quite belated and mild.

INFLUENCE OF PRICE ALTERATION ON REAL ESTATE? On the one hand eluding the restrictions, connected to the regulatory arbitration and 10-15 year-practiced prognoses, based on economic growth tendencies, pushed the credit managers into very bold credit expansion. At the initial stage, it caused consumer’s boom, growth of prices in dwelling and economy. At the background of increased activity, corporations were trying to increase the money flow and issue securities, bonds and other obligations; together with the appearance of new corporations and complicated securities, potential investors. (among them, there are a lot of unskilled people, who most of the time buy securities through internet, not only because of their real income, but according to their interest rate, without any serious risk-analysis). The bankruptcy grew the attractiveness of debt securities as much as it was possible, as if “financial balloon” would have been “inflated” towards credit organizations and torn away the most rapidly increasing credit sector of economy from the real one. Formation of “credit balloon” is connected with the housing and dwelling space boom. The price up growth, caused by increased accessibility of mortgage credit, could have been continued until changing the situation in the real estate market, although the limited immigration to the USA and the UK cut down demands of dwelling-spaces in these huge markets. The banks were interested in increasing the costs of real estate. It can be explained by the following conditiones: mortgage credits were provided with the flats on sale and accordingly their market price defines the existence of possible losses or their size of credits in the case of default by debtors, until the term expires or before default, suitable credit letter or security, steadied by it, as the cost of assets.

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Creditor’s interest, connected with the price growth of real estate is against the debtor and that is the most essential during the period of mortgage, price growing in funds flow increases the share of expenses: Debtor’s funds flow is the most important component of its solvency. Undisturbed up growth of price on real estate, accordingly a great number of debtors and reinforcement of competition among credit organizations: motivation of cutting down the expenses of debtors’ credit analysis by banks, conditioned mortgaging credit insurance to be accented and in fact, this priority made debtors credit analysis into a minor importance question. Though it must be the first and uppermost source of covering the loans and according to the request of prudential law, mortgage as a means of covering loans must be used only in the extreme situations. Yet, this request is followed by banks, still, the important is not only loan repayment by debtors, instead of the results of credit analysis (especially, according to the corresponding funds-flow) but dependence on insurance while taking decision about credit, means that the possibilities of default indices are quite high. Rising by 2-3% in the real sector of economy, in the conditions of property differentiation growth, for the part of such outnumbered debtors credit covering has turned out impossible. The flats, had been moved in the property of banks, still returned back to the real estate markets.

Because of increased deliveries and frequent defaults, the limit on distribution the mortgage credits, caused disastrous slump in real estate property prices. On its side it ment the decline in the maintenance of mortgage credits. Tendency of slump and deterioration of assets quality, that also conditioned the aggravation of liquidity problem, (during this period, reduction of credit rating, quite scared the investors and hedge funds) made the banks minimize the new credit delivering process. Real estate delivery, was mostly realized by using the mortgage credits and without this, the recession of building sector has not been delayed.

Conclusions on credit markets. .Let’s form everything in details and items. All the above mentioned and other problems as well and concretely the motives of credit crisis from the primary sources of financial crisis:

1. While crediting, it wasn’t clear for the experts, if the pretender (afterwards-debtor) would manage to generate funds-flow for covering the mortgage.

2. It was almost possible to cover the price of purchasable house by mortgage or in other words, debtor’s participation was minimal.

3. Interest rate could be changed into many kinds of loans or increased distinctly, that wasn’t realized by everybody else.

4. Very often, mortgage loan was used for other purposes by debtors in order to get ready money.

5. Many credit officers and brokerage firms pushed potential debtors and helped them to create a false profile (mask) of solvency, with the object of getting bonus, commission etc.

SUBPRIME MORTGAGE. SUBPRIME CREDITING . We have already talked about the question of debtor’s solvency in the section of cost economy and accent ensurance. We will also make remark that the analysis of debtors is quite complicated. The causing problems are the following: Rapid spread of network marketing, development of virtual economy, (when the payments and incomes, estimation of softwares are not fixed) also the difficulties in estimation of managing skills and the motive power of corporative relations of human capital conditioned and increased the frequency of inadequate decisions.

Herewith, the banks, in comparison with their rivals were trying not to bother potential debtors infrequently at request of documentation. In accordance with the share of subprime mortgage of incomplete documentation increased from 25% (2000) to 43% (2007).

Subprime crediting due to lack of savings, required the reduction of complicity demands on buying flats for the low income debtors. The forecast for the price growth of flats, made subprime mortgage acceptable. Debtor’s participation by using mortgage for buying the flat has reached 14% by 2000, although it has decreased to 4% since the following year and stopped at this level before revealing the crisis. This even turned into the important stimulator for the mentioned speculations.

Considering the high crediting and ensuring, accepted by giving subprime credits and credit derivatives (we mean, already existed fluctuations in real estate markets in 2001 and the tendency of slump in commercial and housing sales since 2005, also, according to the increased risks, rised expenses of nonbalanced operations of risk controlling and the slump of securities steadied by assets, due to the reduction of credit rating) compensation of market risks was developed by banks under the condition of giving credits by variable rate. If it fluctuated between 10%-23% in prime mortgage, for subprime one, amplitude and its lower bound as well were more: 50%-70%.

Generally, characteristic for RAPOC models, conseptional basis “profitableness according to the risk” is acceptable (in my opinion) on the level of crediting and in common, on the theoretical base level of investment, as the criterion of conferring priority to homogenous creditors, either for selecting one from investment project. But, it must be taken into consideration –how it will be guaranteed and how often it changes the corresponding risks of interest rate for different quantities. In case of large –sized loans, the growth of interest rate has a direct and complete influence on solvency of contragent itself. But in reality, as it seems for the people having less payment proficiency, interest demand was higher, than in the case of prime mortgage.

It must be said that, in case of business loans, in the form of providence (mortgage) because of the connection to the risks of the same businesses, a great share is applicable assets.

The banks were manipulating into interest rates not so often as they were analyzing the business plans and financial conditions of firms maximally. Herewith, the possibility of diversification, according to business types is higher, especially in the standpoint of supply. That is why, credit crisis and default quantities were mostly manifested in connection with mortgage obligations. Easily obtained supply, that in any case was presented by real estate during the default case, moved to the property of banks and, after they were offered to the market, that influenced on the increased supply by slump and it was difficult for them to repay the default by means of mortgage realization. At the same time, because of the practice of so called “air” selling, part of incompleted flats had not been finished by the time of default. Because of price slump, construction boom first was changed to stagnation and afterwards the recession case was revealed. In the chart, is shown the dynamic of price indexes of dwelling-houses, according to the basic level in 2000. As it is clear from the chart the pick in 2005, prices have been declining distinctly, but the number of vacant dwelling houses are increasing. Due to the diminution of new constructions, this growth is mostly continued at the expense of confiscated flats by debtors and creditors, that makes the chart bold.

Owing to credits “corruption” and intensification of liquidity problems, part of the banks stopped even giving other kinds of credits or made the conditions stricter. Many banks experienced the reorganization of problem protection difficulties in regulation norms, capital and coefficient of liquidity; part of the banks bankrupted. Since the beginning of crisis in the USA, until now, the number of commercial banks has decreased about from 7280 to 700. (It is put of sense to name the exact number, as the unity process between the banks and their bankruptcy are still in progress. It became necessary to expiate the huge grants-Fannie Mae and Ginnie Mae by the Federal Reserve systems.

Broadening of broker’s loans is one of the most important surroundings. The share of so called “wholesale loans” in the total credit size widened from 60% segment in 2004 to 90% in 2007. It is natural that credit mediators (but only brokers not dealers) are less interested in guaranteeing credit refunds than banks.

Taking credit officer’s interest (credits were issued even to the clients of less-solvency) was caused by bonus wage payment scheme, according to the issued credits, about what, we have already mentioned above.

Competition made banks satisfy the borrowers’ interests in cash, connected to crediting; this fact and the reduction of debtor’s participation demands give the chance to borrowers to use credits aimlessly.

It caused the system mismanagement. (So the drawbacks of this system itself and inappropriate evaluation of its nature). 15 year old economic development, without any obstacles, made people think, that without rising the real sector of production, goods and services, enrichment were absolutely possible. Financial sector made a colossal, titanic oppress on the real sector of economy. Nowadays, only 2-3% of financial operations belong to real sector, but the rest of the funds work inside the finances. Current world economic financial crisis “from the great depression”, almost after 80 years, still confirms, that the self-flow economy develops not only within the bounds of maximal possibilities, – as it is drawn by Keens and other etatism representatives’’ (French. Etat. State) point of view, but it became the world’s highest pyramid of property differenciation, that now stands upside-down and oven one push, threatens with destruction. For the collapse of this pyramid, it was enough to break one of the connecting balance lines and such was the credit line, stretched between the building balance and banking giants, (here is not meant “credit line” defined especially from the view-point of economical terminology) that was “hung in the sky”. We will see, that construction of new houses was going on, according to the pyramid scheme, in the way that, the flats, in multistoried houses were sold, without even having the foundation under. Such interrelation, in the case of real situations is even necessary for the stimulation of economic growth, but while making prognosis, distinct kind of conservatism is necessary.

Analysts admit, that the main reason of today’s crisis, are not the problems of the USA mortgage markets. Mortgage is connected to real economy, that on its side is an essential instrument of investment demands. Mortgage liabilities in the USA complies -13 billion, but in the world currency markets, the size of operations combine billion in a day and from here, only 4-5% of operations are in real economy and the rest of it is speculative money.

The scales of speculative operations were growing at a colossal speed -12-15% in a year. Money system, that made such an error, is impossible to exist long. It shakes the institute of private property., that requires real, not virtual money. The first signs of crisis, as a rule, influence on banks, and only afterwards on the real sectors of economy, and after all, it moves to the financial sphere of the state and budget system. As the analysts say, today we are on the first stage of crisis.

As it is known, annually billion cost of goods and services are produced all over the world, just this sum of money is contradicted the securities of ,5 quadrillion value; such as, state and private bonds, shares, bills and so on and so forth.

Central banks from the other countries, with assistance of world’s financial system, began milliards of dollars in flow. At the distinct stage, it helped the situation, but temporarily. According to some analysts, it is impossible to fill this ,5 quadrillion cursed hole, and even the total money reserves of the USA and Euro-zone central banks won’t be enough, moreover, pseudo-money, that is called securities can’t be transformed into cash.

What should we do?! According to the analysts. In order the world not to be found at the edge of world catastrophe, they should work in two directives: Continue real economic crediting, even if only today’s existing level be maintained.

The first direction is quite difficult, but necessary. Every day new information is born about “economic catastrophe” and the reason of it is credit freezing.

Financial structures only want the cooperation with the cash-holders. Though, the crises destructed everybody’s capital. From the view-point of experts, one of the survival ways in economy is to involve as much capital as possible in the economy. The size of recapitalization should be spread more and more, and the state control should become stricter in order to male almost the nationalization of the significant part of financial system, but only temporarily. Afterwards, when the situation returns in its usual regime, again start its denationalization. Experts example of this is Switzerland, which after fighting against the crisis at the beginning of 1990, managed to return its shares again in bank.

Because of the crisis, in a number of countries, complete or partial nationalization of took place. Lately, Great Britain put £50 billion (about £64 billion) on the recapitalization of Britain’s big banks. Great share, from this money -£37 billion is for the following banks: Royal Bank of Scotland HBOS and Lloyds TBS. In return for this, it is being planned to give shares from Royal Bank of Scotland and HBOS transfer control packet to the state. It is supposed that the temporary nationalization of banks will last more.

As we’ve mentioned above, we are only at the initial stage of crisis, but economist’s forethoughts are realizing and after New Year, that will collapse many well-known banks, industries, laboratories, universities, and after all the people’s future.

Somehow bank sphere, although temporarily sighed, but still real sectors of economy stayed without money. Banks don’t issue money any more. This terrible tendency will cause a huge problem not only for the real sectors of economy, but also for separate countries. Many countries live on the credits of financial institute and if the situation doesn’t change, a number of countries such as Pakistan, Argentina, Mexico, Hungary, the Ukraine ad others are against the danger of default. Furthermore, at the end of 2008, Iceland itself was at the edge of risk realization factor and the British Financial Institute were blamed for this.

“Fighting” methods of against crisis. Different methods of treatment are used in different countries against economic crisis.

In this or that sphere of economy, fighting against crisis, accordingly can devided into three models:

I. When the total sums inflow in the financial field, or the very case, that America did. It put ,3 billion on assisting banks, but for supporting the real economy-10 times less.

Goverments of Canada, Ireland, The Netherlands and Sweden are also following this principle.

Method can be considered as the second model, when the government refers all its efforts towards the real sectors of economy. Just this way Socialist China was chosen. Its authority made an investment in infrastructure, agriculture and social fields.

According to the analysts at the company Merrill Lynch, just this was the reason that the Chinese market is still in the center of attention for investors.

Some countries try to give the equel hand of assistance to financial sector as well as real economy. This model was only used, after the bad example of the USA. How many countries believe that only with the help of financial sphere, crisis would not be got over. Such countries are: Germany, France, Italy, Sweden and Japan.

The leaders of European Union, declared the assistance of 0 billion to member countries still in November. On 12 December, just this antirecessionary plan was proved in Brussels. According to the plan each member country will assign about 1,5% of money from their total income. € 30 billion from €200 billion will be assigned by investment bank. It is underlined in declaration, that according to the viewpoint of European Union countries, in the separate sectors of economy, taxation rates and extra value in taxations can be cut. According to the agreement, of European Union won’t let any big financial organizations be bankrupt. Because of maintaining the creditworthiness of banks the government plans to buy their shares. In short, for stimulating the economic growth, European Union will take deep co-ordinated measures.

According to experts, the world’s leading state have already spent in all ,4 billion for antirecessionary measures.

Any kind of funds that will be used for the growth of economy is acceptable. Those expenses, which are used for social programmes and economic activities by states, it is possible to be a very heavy burden, bur the expenses, that will be assigned in the future because of today’s inactivity, will be much bigger burden, than the savings themselves.

Economic Doctor of Science Professor

Lamara Qoqiauri

Qoqiauri Lamara
Working place: Tbilisi Iv. Javakhishvili State University
Address: Tbilisi, 2, University St.
Tel.: (+99532) 30-40-66
Web-site: www.fib.ge
mail: qoqiauri@caucasus.net

Residence: Tbilisi, Varketili, 159, Gakhokidze St.
Tel.: (+99532) 79-07-10; (+99532) 760595 Mob.: (+99599) 90-60-11
Fax: (+99532) 76-05-95 E-mail:

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Emerging Financial Markets and Secured Transactions (International Economic Development Law, V. 6)

Emerging Financial Markets and Secured Transactions (International Economic Development Law)

Most medium and long-term loans are no longer secured by sovereign or governmental guarantees. As a result, lenders must seek security elsewhere. An investor-friendly climate requires a sound legal framework for lenders to effect and enforce secured transactions. This work collects papers from experts in the field on various aspects of cross-border secured transactions, an issue of increasing import in the development of emerging financial markets and transitional market economies. Topics of par

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How to Secure A Line of Credit When You Need Cash

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Tags: Development, Economic, Emerging, Financial, International, Markets, Secured, Transactions

Friday, February 25th, 2011 Secured Business Loans No Comments

How Do Soft Markets Affect Your Construction Loan Rates and Terms?

Construction loans, especially owner builder construction loans, are tricky enough when the mortgage industry and housing market is doing well. Things got a lot tougher, though, when lenders tagged certain counties around the nation as being areas of declining values.

These counties are known in the mortgage industry as soft markets, and they are having a big effect on your owner builder loan terms whether you recognize it or not. If an owner builder wants to build his home in a county that is listed as a soft market, then he should expect to have different financing guidelines than someone who is building in a county that isn’t tagged as being an area of declining home values.

It’s a tough pill to swallow for someone who is caught in this situation, but the guideline changes are based on prudent lending principles. The biggest change that an owner builder needs to be aware of is the requirement for a larger down payment than normal.

For instance, if you are building your new home in a soft market, then you can expect to make a down payment of at least 10%. If your normal owner builder construction loan guidelines were for a 10% down payment to begin with, then you may have to put an additional 10% down.

For example, if you are building a home with an appraised value of 0,000, and your loan terms called for a 10% down payment of ,000, then you may find in a soft market area that you have to actually put 20% down, or ,000. If you are getting an owner builder construction loan that typically requires no down payment, expect a 10% down payment for any construction in a soft market.

Why is this fair? Look at it from the lender’s point of view. They are putting up a lot of money for you to build a home in an area where loan values are decreasing. Therefore, in order for them to still be able to provide loans, they need borrowers to cover the possible value decrease by bringing some cash to the table.

By requiring owner builders to make an extra 10% down payment, lenders are protecting the loan-to-value ratios in the event that the house value decreases by the time you are done building it.

It helps to look at it this way: the revised guideline for soft markets is actually a good thing. The alternative is that a bank refuses to provide owner builder construction loans in any county that is tagged as a soft market. Then, you would not even get the chance to build your new home.

Therefore, if you are an owner builder who wants to build your new home in an area that is a soft market, at least you still have some options with your construction loans. If bringing an extra 10% down payment is not a possibility for you, do not fret too much. The really good news is that the list of soft market counties around the nation is drastically decreasing in size.

Though there are no guarantees, the mortgage industry is hopeful that the list will be shrunk to a bare minimum size in the next six months or less. Once home values are done dipping, the counties will no longer be considered soft markets. Once this happens, owner builder construction loans can go back to their standard guidelines and down payment requirements.

If you are an owner builder, you are probably wondering if your county is affected by these soft market designations. The only way to find out for sure is to speak directly to the construction lender who provides the owner builder loans. They will be able to tell you for sure if your county is on their soft market list.

In general, owner builder construction loans in Florida, California, and northern Virginia are the ones that are affected the most. However, there are still plenty of other states that have counties with soft markets.

Therefore, do your best to get this information up front from your owner builder loan officer. Don’t wait until it is too late to find out that you have to bring extra cash to the closing table.

Owner builders who fully understand the effects of building in a soft market can plan around the guideline revisions and still build their dream homes, saving tens of thousands of dollars in construction costs. But, an owner builder who does not pay attention to the realities of the new market conditions will be the one to suffer the consequences.

Chris Esposito provides owner builder construction loans to allow individuals to build their own homes without paying for a general contractor. To get more information, go to the Owner Builder 101 website at http://www.OwnerBuilder101.com, or call (877) 876-3688.

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Tags: Affect, Construction, Loan, Markets, Rates, soft, Terms

Friday, February 25th, 2011 Construction Loan Rates No Comments

Investing – Home Prices fall in majority of the biggest markets

If you have owned a home, or any piece of residential real estate including condos, and vacation homes than you are aware of the run up in prices that occurred for a five year period that ended more than a year ago. In terms of investing, owning a home for half a century has been a wonderful way to build wealth. It is one of the few investing methods where you could actually live in your investment, while it increased in value. Most investors are not aware that from World War II until last year, there was never a single year where home prices fell on a national level, until last year that is.

Homeowners have counted on a steady annual increase in the price of the house they were living in to create a wealth effect. For many, it was their only source of forced savings. It was also a participation in the American dream – owning your own home, and living in it.

Studies are now available which show that at the end of last year, a number of housing markets declined. Actually, 149 different markets experienced the decline. Hardest hit were the East and West Coast of the US, and the Northeast cities.

In you were in Florida at all last year, it was impossible not to see thousands of super cranes going about the process of building 20 to 50 story condominiums. The vast majority of these condos were bought on speculation with the buyer signing the contract never anticipating the need to close on the contract.

We have not seen a mass number of walkways yet. These are people that signed non-recourse agreements with the builder, and are in a position to walk away from the agreement without having to write a check. They will forfeit the deposit they put down however.

Florida may well be the state taking the biggest hit in real estate. Sarasota was down 18% by year-end, while Melbourne was experiencing a 17 % decline. We are talking about actual prices being down. On a national level prices were down 2.7%.

Many analysts haven’t quite figured out what this means? Are motivated sellers holding onto residences longer in anticipation of getting their higher price later on? Are some sellers withdrawing their homes from the market, or perhaps not putting them on the market at all, awaiting prices firming up, perhaps later this year?

What about sales themselves?

In addition to prices being down, there are less actual sales taking place, which is leading to a larger inventory of unsold homes. Forty different states have reported a decline in the number of sales taking place. On a national level the number comes to a 10.1% decline in the actual number of homes being sold regardless of price. Three different localities have reported physical sales being down more than 30%. They include Nevada, Florida, and the District of Columbia. Virginia reported a 20% decline.

There were six states that reported an increase in the number of sales taking place – that’s six out of fifty. They included Alaska, Arkansas, Illinois, Kentucky, Mississippi, and Texas. There was no impact on Utah where sales were flat.

What you really need to look at is the VACANCY rate. The vacancy rate is the number of homes on the market where nobody is living in them, and they are for sale. On a national level, this number always seems to hover around 2%. At year-end, the number went to 2.7%. This is a massive increase because 2.7% is the highest it has been to in 50 years, and that’s only because they started figuring out the number 50 years ago.

You’ve got owners out there who are just waiting, and won’t sell at a lower price than the price they want. This accounts for the increased vacancy rate. On top of that you have another issue. There does come a point where a seller may have to sell. He will take what he can get, even though it establishes a new lower base from which everything else can trade.

Once this base is established than other buyers and sellers see it. The seller reacts with alarm. The buyer reacts with glee, but trepidation also because the buyer doesn’t know if prices are going lower still. This is how panic selling sets in, and no buyers. The buyers walk away, waiting for still lower prices

It’s the same as the stock market, sellers once they have seen higher prices, don’t want to sell at a lower price. Many prefer to wait, hoping, and it is hope that the price will come back. Only the forced seller will do the deal. It might be an estate, or divorce settlement, or a housing relocation that forces the actual sale. It doesn’t matter, once that sale hits the marketplace for all to see, there is a new adjustment in the real estate market.

Where’s the BIAS Now – UP or DOWN?

It is difficult to tell if the year-end numbers have wrenched out the secular excesses that have taken place in the real estate markets in the last five years while everything went crazy on the upside. There may be more to go. If you look at the stock market, most of the house builders bottomed out several months ago when they all made new multi-year lows. Since then, they have rallied nicely. If the real estate market has more to go on the downside, than these stocks will probably have to build double-bottoms before the decline is actually over.

If however, the vacancy rate picks up from here, and price declines have seen their bottom, than most of the damage is behind us. The economy overall and interest rate seem fine, so we don’t expect damage coming from a decline in GDP this year. What seems to be happening is that we are looking at a wearing down of the excesses produced since the late 1990’s in residential real estate in this country?

The geographical segments of the country that experienced the most increases in real estate prices are now the ones experiencing the declines. It’s the same story, and the story never changes, only the areas of the country being affected changes. Our work shows that prices, and vacancy rates have a way to go yet on the downside. At the same time, we believe the housing stocks may decline, but the absolute bottoms established months ago will hold. We are already off those bottoms.

Goodbye and Good Luck
http://www.stocksatbottom.com/ez.html

Tags: Biggest, Fall, Home, Investing, majority, Markets, Prices

Monday, October 25th, 2010 Grants No Comments

Foreign Exchange Markets

The foreign exchange market or the forex market as it is more popularly known is one of the most exciting and fast paced financial market. The market has seen large scale entry of individual investors, which until the recent past was the domain of large financial institutions, leading world banks and hedge fund operators. Because of the strict qualifying parameters imposed, only a few wealthy individuals had access to the foreign exchange trading markets.

The advent of technology has changed all that dramatically. Now, you can trade in forex from the comfort of your homes if you have a computer and net connectivity. With an online brokerage account you can easily buy and sell currencies with the click of a mouse.

Unlike equity and stock markets, the daily fluctuations are very minute in a foreign exchange market. The foreign exchange trading is done in pairs and many pairs move less than one percent in a day. The enormous leverage offered by the brokers to the foreign exchange traders helps them invest in huge volumes to make up for the low volatility.

In a normal market, high leverage is perceived as something that is extremely risky. However, in a foreign exchange market because of the deep liquidity and round the clock trading, brokers have been able to make high leverage a norm of the industry so that traders can have meaningful returns on investments.

The forex markets offer a high degree of flexibility. Extreme liquidity and high levels of leverage has helped the market grow dramatically and help traders make enormous profits. Trade positions can be opened and closed within minutes or can be held for months. The forex market is a safe place to trade because currencies cannot be subjected to large scale manipulations and riggings which is a common feature in an equity or derivative market.

Because of the global size of the market, there is little possibility of even banks and financial institutions making even a small dent in the trading prices of currencies. They are based entirely on the demand and supply situation.

The forex markets offer plenty of opportunity to investors. However, to be successful one has to understand the fundamentals of the currency moves and the nuances of the trading process.

By: Michael M Caine

Welcome to Fx Trading Factory, The blog is about trading, whether you are interested in day trading, swing trading using automated forex trading software. If you want to know more about currency trading for dummies, foreign exchange trading then check out the latest information and tips to be a successful forex trader.

Tags: Exchange, Foreign, Markets

Wednesday, October 6th, 2010 Grants No Comments

Panic Grips World’s Markets

The US government’s $700bn bail-out of the banking industry collapsed yesterday as Congress defied the White House by voting down the plan, sending Wall Street stocks plummeting and spreading shock waves through the global economy.

In a snub to George Bush’s authority, Republicans in the House of Representatives led a rebellion which defeated the rescue by 228 votes to 205.

As alarm mounted on Wall Street about the stability of the financial system, the Dow Jones Industrial Average plunged by 777 points to 10,365 – its biggest percentage fall for seven years and its worst drop ever in terms of points.

The package was intended to allow the government to buy toxic mortgage-related liabilities from banks, after warning that without action banks would curtail home loans, car loans and student loans, as well as credit to keep small firms trading.

Bush, who had spent the morning phoning wavering Republicans, made a terse statement expressing “disappointment” and pledged to develop a strategy to “continue to address this economic situation head on”. The treasury secretary, Henry Paulson, said he would work on an alternative plan. “This is much too important to simply let fail,” he said.

Although most Democrats in the House backed the plan, two-thirds of Republicans voted against it. Many attacked it as a perversion of free-market economics and a departure from Reagan-style liberalism.

As recriminations began, Republican leaders blamed the Democratic speaker of the House, Nancy Pelosi, for framing the crisis as a consequence of recklessness by the Bush administration. “The speaker had to give a partisan voice that poisoned our conference,” said Republican leader John Boehner. This drew ridicule from Democrats. Barney Frank, chairman of the House financial services committee, said: “Somebody hurt my feelings so I’ll punish the country? That’s hardly plausible.”

The negative vote is a blow to the Republican presidential candidate, John McCain, who briefly suspended his campaign last week to try to broker an agreement. He urged fresh efforts to find a deal, saying: “Now is not time to fix the blame – it’s time to fix the problem.”

On Wall Street, there were groans as traders gathered around TV monitors to watch the vote. “Everybody stood their with their mouths open,” said Sal Catrini, an executive director at JP Morgan in New York, who predicted that the uncertainty would send stocks plunging. “We’re seeing real selling, but no buyers.”

Fourteen commercial banks have gone bust so far this year, and yesterday another troubled high-street name, Wachovia, was rescued in a takeover by Citigroup. In a Gallup poll for USA Today, 33% of Americans said they believed the country was in a depression.

The Mortgage Bankers’ Association reacted by warning of job losses as banks curtail credit to small businesses. Larry Fink, chairman of a leading US investment management firm, BlackRock, said critics had been wrong to characterize the plan as a bail-out of Wall Street. “This is a bail-out of Main Street,” he said. “Banks have no ability to lend at the moment because their balance sheets are so gummed up.”

The financial fallout was swift and brutal. Shares in leading US banks slumped: Bank of America by 16%, Citigroup by 12% and Goldman Sachs by 11%. Oil plunged by $10 a barrel to just over $96 as traders bet on a slump reducing the need for fuel. The dollar fell sharply and the price of gold surged close to record territory.

Peter Morici, professor of business at the University of Maryland, said: “Things are going to get so bad something will have to be done in the next few weeks. Banks will sink, credit markets will seize, the economy will go into something much worse than a recession.”

Tags: Grips, Markets, Panic, World's

Wednesday, October 6th, 2010 Grants No Comments

Qinghai Tibetan Carpet Industry Exports Face a Crisis in Emerging Consumer Markets Birth

The global financial crisis, export orders dropped almost as many companies, the biggest difficulty, highly dependent on the international market for Chinese enterprises, especially the carpet. Sellers are loot at home and abroad of China’s domestic market a piece of “fat”, but an export domestic remedies are not necessarily eliminate all diseases. For someone who used to export enterprises, in the process, must learn to endure the throes of transformation.

Do not hear sound but see children loom hee.

Because after the rain, cars began to look at highway bumpy dirt road in the mud before the trip, which is blocking access to Long Huang County Town of Red Lam Tsuen only route. Huangzhong County is in Xining, Qinghai, Hung Lam 20 kilometers from Xining, however, but the road was gone for nearly an hour. Poverty in the typical western village, no decent homes, end of the village with a compound of this workshop has been part of Tibetan carpet landmark. Tibetan carpet Honglin Li Choi-processing plant manager told reporters that the village shop was built in 2006, a total of 10 looms.

Now is the busy time to shop the farmers to work less, a total of 29 individuals, if the winter slack time, this village of 400 families is the most popular place this small workshop, and to finding a carpet in a working Hung Lam position as the most complacent of women do. Hung Lam bear workshop is hand-woven Tibetan carpets which the procedures. Tibetan carpet weaving patterns made in the design is completed and stained after a good line drawings sent to here.

Tibetan carpet weaving is the longest production process is the most cost manual. Local women to weave carpets are on a Tibetan carpet factory after round of free specialized training at least three months before induction, the wages paid piece rate, according to weave a different dimension of difficulty and complete the level.

Yu-Fang Chen has been working here for over a year, as a “technical director”, she will check again every day workshop at the completion of the situation is to ensure product quality. Her workshop for women to get 200 yuan a month to wage ranging from 500 yuan, accounting for 60% of family income over all, so come to shop to work very status of women in the family.

Workshop with the normal sense different workshops around the red end of the village in Lam Tsuen, children everywhere play figure. Most of these children less than school age. Finance Director Li said: “We’ve got to work more flexible, able to bring their children, so that the children at home unattended. Busy time at home to help her husband on the farm, when you can slack since the carpet.”

According to report, in Qinghai Province such as the red carpet shop in Lam Tsuen, nearly 400 farmers and herdsmen to provide close to transfer 33,000 jobs. Carpet weaving in average annual income of farmers reached 3,000 workers or more (an average of 8 months of work per year), the basic realization of the farmers to convert from one person, family stability goal of poverty.

This is in a crisis situation six years ago is still in the Tibetan carpet industry was not easy. Carpet exports in Qinghai Province after the founding of new China and some traditional items, but the planned economy era, in order to make most of the state-owned carpet production Ding Xiao enterprises have been closed down 90 of the last century. Although private enterprises were born carpet, but the throes of change makes the carpet weaving industry in Qinghai to leak to other areas, the industry faced a crisis.

Qinghai carpet to see the loom by a neighboring truck sold at low prices in 2003, Qinghai Provincial Department of Commerce report on the revitalization and development of Tibetan carpet industry, the provincial leadership of the report handed it desk. Through research, Qinghai and industrial raw materials and labor traditionally has an advantage. So then the Government on the development of the province Qinghai Tibetan Carpet Industry Development goals, strive to cultivate leading enterprises.

Regard to funding, the government must devote greater efforts to support the agricultural and pastoral areas of Jianshe Tibetan carpets Bianzhi workshop, weavers and the training of professional and technical personnel, technology and new product research and development, opening up new markets.

Handmade Tibetan carpets are labor-intensive industries, with the land but not leave their homes and production layout characteristics of combining centralization and decentralization. After several years of exploration, Qinghai’s Tibetan carpet production out of a “company + shop + farmers” business model and formed a 11 Tibetan carpet manufacturer of industrial clusters.

Tags: Birth, Carpet, Consumer, Crisis, Emerging, Exports, Face, Industry, Markets, Qinghai, Tibetan

Wednesday, September 8th, 2010 Federal Small Business Loans Grants Government No Comments