JRS, you are absolutely right! Agreed that this is extremely sad. Life, health and auto-insurance companies (just to name a few) have been doing this for years. They are in the business of making $ and if you are not withing statistical bounds, then beware! Depending on the underwriter, you could be placed into a high risk category by next year.

Education (as you can see in my earlier blogs) was the same way. If I didn't score at a certain level and the family was poor, you would be put into the reject pile called "standard". The pile for further evaluations is called the "advanced classes" and this began as early as middle school.

The thing about the situation is the entire infrastructure of banks, jobs, insurances etc have fallen apart and each citizen is calculated to be worth 600K ... over a certain "period of time" given fallout conditions.

It will become a greater problem when the words "triage" and "sacrifice" are used. This means that some citizens will be treated 'more equally' than others because there just is not enough to go around (once called rationing).

What's sad is that somebody actually figured out that if the 700 billion in bail-out money was divided amongst the US citizens, we'd receive roughly $600,000....enough to pay off all of our loans...put our kids through college...set up retirement funds....buy new stuff to boost the economy.  Instead, the people who mis-managed the money in the first place get bailed out so they can mis-manage the new funds.

yeah, I also heard that many credit card companies have problems with customers who are not able to pay back their depts and also the german car industry is already affected, because Opel is a daughter of GM and GM is heading into a serious financial crisis due to dropping car sales...
I also think that the developing countries will gain more importance in this crisis as well as it is crucial that the won't happen any uproars and unrests there...

The problem with the credit crisis unfolds as follows:
(1) Consumer purchases online
(2) Creditcard transaction occurs
(3) During transition between receiving the product, the business receives the payment from the credit card company within a week.
(4) Business goes under (not a big company but more of the Mom&Pop stores) and the consumer does not receive the product

Who owes the liability? The business should really return the $ to the credit card. In many cases, this is not true and the credit card company is insured against this loss.

This crisis that is occuring frequently is causing several companies such as Visa to evaluate the necessity to change the credit terms to 60 days before they pay the business and guarantee stability.

This means that retailers will need to have 60 days of capital to revolve their businesses. This could really create a catastrophe and you are right Silky -this is a huge problem if it continues to unfold in this manner.

Auto industry is more complex. Most people are only looking at USA and the job losses. The situation is that it will cascade to Canada as a well.

Right now this is unimaginable but it could spiral into reality:
People could in panic opt to go entirely pedestrian and forego risks associated with driving cars altogether. This setback would limit consumer transactions.

Quite likely:
Employees would shy away from employment at the auto industry or 'big' industries in fear of a collapse in the following sectors:
(1) Banking & Finance
(2) Auto
(3) Airlines

Categories (1)-(3) really take up the most jobs and is a driver for consumer's purchasing. Wal-Mart & COSTCO are key things to be watching. Firstly, consumers will switch to buying cheaper and buying bulk. Next, they will hoard and then 'could' reduce buying suddenly -this further downward pressure has not been realized yet.

Hopefully, the bleeding will stop. Argentina, Germany have both fallen ill to the crisis. The situation needs to be contained soon.

What is the solution? Try to make what you can and conserve. Don't even spend to go to school.

The problem with this is solution is it causes the situation to become worse.

I firmly believe we are seeing a global shift from G7 to G20. From developed to developing countries and it is a new world order where it won't be so stable in developed countries and more opportunities will come from developing countries.

For those of us who come from developed nations (including myself), this situation is very real.

Right now, there are no counseling services or anger management situations for the communities and civilians at risk. You could quickly see riots if the situation escalates further.

Manufacturing is now mostly originating from China. This has created an imbalance and toxification of foods (melamine, lead in toys, malachite green, sudan red etc).

Coca-cola cannot meet numbers easily in the G7 countries so they have diversified to selling in countries like China who are still dreaming of living like Americans.

The musical chair game is not so good right now and the term that President-elect Obama mentioned was S-A-C-R-I-F-I-C-E. What does this mean or entail? Does it mean lowered salaries, lowered housing valuations ... then perhaps banks should also lower or extend their mortgages to 60 year loans rather than 30 years. The problem is most people don't live that long. This was addressed during feudal times where you could be born into the world carrying your parents' debt.

Let's see how things develop over the next few months ...

yeah, it helps a lot thanks! For me as an economic and real estate geographer concerned about the general situation, those more general economic related information are crucial.
I am sure there is already serious impact on the credit card system and also on the automotive industry...which may collapse next...

Ah yes, the US situation is increasing in magnitude because distressed homeowners are growing. The complications are:
(1) Use tax dollars to stabilize homes -but homeowner still doesn't have jobs to pay their mtgs -still failure
(2) Forego helping the homeowner -more homes get trashed, if more homes foreclose, more devaluation of the entire housing mkt - lowered consumer sentiment - less consumption could lead to less jobs

It seems that they are going to choose option 2 and let it go down further and see where the bottom is.
In any crisis, you also have fear related errors. For example, if you are 15 days late with your payment the bank can issue the following steps:
(A) State that you are in default
(B) Demand 100% of the loan be paid up
(C) Foreclose on your property within 30 days.

This kind of action only makes it substantially worse because it was the bank `fearing` something was wrong and choosing to protect themselves.

And so the downward spiral continues to get bigger and wider. The average consumer just cannot afford to not have some kind of buffer. Everyone is always focused on 'taking' $ from the consumer rather than thinking further down the line -does my product help the consumer become a healthier consumer?

These 5 & 7 yr arms were just to get a quick $ and closing with the consumer. You're actually not seeing these default to higher rates yet. Currently, you are seeing 'mostly' 30 year fixed mtgs go down.

So yes, silky it is very very bad. Unfortunately, the Adam Smith model of free markets is the one falling apart vs. gov't controlled and everyone is pressuring the USA to go gov't controlled.

The subjective part is that many of our executive committee (i.e. Treasury Secretary Paulson) does not want to forego a free-trade economy. The goal is to treat it as a loan and to promote laisez faire as much as possible.

Unfortunately, the situation at hand is spreading and the loan is not containing the situation. As it spreads to other sectors (as feared), it will collapse other systems.

The more homeowners that act like this, the more sickness and disease is spread. Our hospital system may become overstressed. Our educational system may also fail as the lack of the home means no leverage of capital for schooling. Although there still exists student loans, it doesn't cover 100% and the student may need to be withdrawn since this years loans were based on the parents tax returns and assets from last year.

Media doesn't go into these details because they just want a short story with BIG BIG headlines. Hopefully this helps.

I think it was a big load of frustration and also a feeling of revenge...but I was more or less referring to the situation in general in the US

Yes silky it is very devastating and spreading like gangrene:
http://www.swamppolitics.com/news/politics/blog/2008/11/its_the_foreclosures_stupid.html

Imagine what must have been going through the homeowners' minds to leave all that fecal matter on the lawn. It looked human and they must have all contributed many bowel movements to create that mess. The longer it takes to arrive at a resolution, the more negative momentum will build.

didn't know that the situation is that devastating...

yes, this is happening all over the United States of America! It is supposed to increase in the near future too! People are really going berserk ...

OMG!!!
This is sad and discusting!!!
An older vacant home, two houses away from ours was demolished, because vagrants had been using it, with people camping out in the backyard as well >.<