6 Aspects of Understanding the Foreclosure Inventory and 2008 Financial Crisis

The US suffered an untold financial crisis in the year 2008. This led to the worst economic recession the nation has witnessed since the World War II experience. The crisis virtually affected all aspects of the US economy. The real estate business suffered a setback. The foreclosure inventory trend also declined. A clear understanding of the foreclosure inventory and the 2008 financial crisis is very vital. There are 6 vital aspects to consider. Let’s examine them now.

1. The trend of Foreclosure Inventory in 2008

The trend of the foreclosure inventory has been going down ever since the 2008 September financial crisis. There have been over 3.5 million completed foreclosures since the days of the crisis. Lots of decreases have been noted in the quarterly and yearly reports on foreclosure inventory. The number of loans in foreclosure inventory, decreased by 6% as at March, 2012. Of all the homes with mortgages, an approximate number of 1.4 million homes were seen in the March 2012 national foreclosure inventory as against the 1.5 million homes involved in the previous year.

2. The 2008 Melt Down

To understand the reason for the declining state of the foreclosure inventory, a look at the 2008 financial crisis is very important. Actually, the crisis began in September of the same year. It led to a major recession in the US economy and also caused economic meltdown in many other nations. In the same September 2008, the Lehman Brothers which is one of the World’s largest investment banks failed. The US stock market also went down drastically. Several big companies in the US downsized the number of their employees. The entire US economy came under great attack by the recession. This affected several areas of the economy including real estate and foreclosure deals.

3. Causes of the 2008 Financial Crisis

Several factors led to the 2008 financial crisis in the US. Market instability is seen as the one of the major factors. There were severe changes in the creations of new credit lines. This caused retardation on the economic growth and also dried up the money flow. Cheap credit access is also another factor that led to the crisis. People found it very easy to access credit loans for buying houses and making investments. The cheap credit system made more money available and hence caused people to spend money as they want. This later caused economic crisis in the financial sector.

The 2008 crisis went from bad to worse when greed set in. Many people in government got rich quick while the poor masses suffered in the process.

4. The Impact of the 2008 Financial Crisis on Foreclosure Inventory

The 2008 financial crisis left negative impact on the entire US economic. Virtually every aspect of the economy suffered the heat. In the real estate sector, lots of setbacks became apparent. The housing market declined. Access to mortgages skyrocketed. Many people who borrowed money from lenders couldn’t repay back the full payment. This led to foreclosure cases. In any case, the foreclosure inventory kept decreasing as seen in many states.

5. Foreclosure Inventory in Various States

Since the days of the 2008 financial crisis, the inventory has continued to decrease. The highest percentage of foreclosed assets was still very low in various states as at March 2012. Some states had higher percentages rates. Florida had 12.1%, New Jersey had 6.6%, Illinois had 5.4%, and New York had 4.9 % while Nevada also had 4.9%. The trend continues in many other states. Some states had the lowest percentage of foreclosed homes. Among them include Alaska with 0.8%, Wyoming with 0.7 % and South Dakota with 1.4% and Nebraska with 1.1 %

6. The Way Forward

the final point to consider in this excursus on understanding financial inventory and the 2008 financial crisis is the actual way to make things right. It’s very clear that the foreclosure inventory is coming down. To help the system, loan modifications should be introduced. The use of deeds-in-lieu and short sales should also be encouraged as best alternatives to foreclosures. This will help in ameliorating the impact of the 2008 financial crisis on foreclosure deals.

International Trade in Global Financial Crisis

The subprime crisis of the big power has led to the global financial crisis. It seems that such an expression overstates the strength of the big power. But we cannot ignore the economic globalization which makes economic communities connect with and affect each other positively or negatively.

In the financial tsunami hitting every corner of the world, what are the status quo and future trend of international trade?

First of all, it is necessary for us to look at the trade chain:

– raw materials
– finished product processing firms (manufacturers)
– (suppliers – trade companies)
– logistics companies
– importers
– wholesalers
– retailers
– end consumers, financial service providers such as banks, and Internet platforms for international trade led by Alibaba.

On the chain, all the elements are interactional and can transmit to each other. Price transmission is a key element. Rate of exchange influences trading price. We can begin with importer, one of initiators of trade. With the global financial tsunami seeming to gradually calm down, a procurement manager working with a large company that was founded one hundred years ago talked about their current situation: we are now facing extremely high pressure in retail and need to reduce retail prices of our products in market.

The manager urges suppliers to cut down price with three simple reasons:

1. Against the background of current financial crisis, prices of raw materials have decreased;

2. Significant reduction in prices of energy products such as petroleum means lower freight and storage cost; and

3.With the decreasing and stable amplitude of the financial crisis wave, rate of exchange will tend to level off and rise.

Then why do suppliers need to reduce their prices? Because the consumption end of commodities is facing much lower purchasing power of the country due to the financial crisis. The information from the consumption end is that the consumer confidence index goes down and end consumer groups (including corporate and individual procurement) reduce their costs, expenses and consumption. With such a weak market, merchants can only use price reduction as their sharp tool to stimulate consumption. Merchants promote psychologically by enabling consumers to buy the same goods as before with less money. Wholesalers and retailers in the middle of the chain deliver goods on the chain from one level to another. During this course, they gain profits and ensure normal circulation of goods. Their sensitivity to price and inventory leads to importer’s action mentioned above. As for wholesalers facing high retail pressure, lower purchasing power and weak sales, price is the only and effective solution to improve sales.

As for consumables, those who are able to provide the market with inexpensive commodity with proper quality will have a large market share, no matter they are wholesalers or importers. This is low-price transmission resulting in larger trade volume. With increasingly stable financial community, trade will tend to be active and large in size when consumers have suitable savings and their purchasing power and consumption confidence index rise. Maybe experts and scholars then will conclude that the crisis has ended and economy begins a recovery journey. When it comes to the bulk commodity market, economists say that its bull market has ended since crude oil price peaked. Those people trading at the peak of the bull market have made a great loss due to substantially lower price. The time for them to recover from such a loss may be longer than that for the crisis to come to end. Therefore, goods at low price will be favorites of people in a certain period of time.

Next, we will discuss the price transmission from the perspective of suppliers. With the global financial tsunami directly leading to significantly shrunken trade volume, it is truly a thorny problem to retain customers while continuing to make profit and reducing risks and losses in such an environment. To maintain its normal operation, supplier may adjust prices of its products or accept orders and deposit foreign exchange if rates of exchange fluctuate narrowly, waiting for further stabilization and rebounding of exchange rate. They look like those who are bundled to stocks purchased at high prices and wait for being unbundled and reducing loss. Prices of products from suppliers will be influenced by that of raw materials. It can not be ignored that the crisis directly makes many small-and-middle-sized enterprises (SMEs) go bankrupt, or stand on the verge of bankruptcy, or reduce their employees. As an Internet trade platform, Alibaba, which has a close relationship with those SMEs, said that the next few years will be a winter in its operation. A lot of SMEs get orders, generally small ones, through Alibaba. Due to the crisis, there are no longer any small orders from Alibaba for those SMEs. With the economic depression caused by the crisis ensuing the global inflation and big ups and downs of price, the lack of orders has directly led to huge loss of SMEs, especially for those who focus on export trade. As a result, there is a bankruptcy upsurge of SMEs that operate on a high-cost-and-low-price basis. The bankruptcy and shrinkage of SMEs have directly affected the proceeds of Alibaba that mainly provides services for SMEs. Considering this point, the financial crisis also leads to early coming of the winter of Internet Business-to-Business E-commerce. Internet E-commerce seeks for breakthroughs in a new operational mode while waiting for its spring.

What about logistics companies between importers and suppliers? Suppliers or importers have a direct business relationship with those logistics companies. Significantly shrunken volume of freight causes the over-capacity of those shipping companies and forwarders. There is even zero trade freight for transporting goods to the countries near the ocean. In fact, freight is paid by importers. However, for now, transport cost is significantly lower than ever before. Similar to sea-borne and air-borne shipment, international express business has witnessed a big drop in delivery of samples and documents resulted from decrease in trade. It can be seen that most parts of the influenced trade chain will incur loss. What about banks? It is impractical to say that the destruction in trade will lead to weaken business of banks. At most, banks will have less volume of business in loans and export bill purchase. It is financial derivatives that are affecting banks, seemingly not in the same field as trade.

Financial crisis is a situation where the capital chain of financial system breaks. Superficially, there is not enough currency in an economic system. Actually, the reason is that the circulation of currency is not good. Superficially, companies or merchants do not have funds or lack funds and cannot get loans from banks. Money can not flow freely. These have led to the fact that companies go bankrupt, or reduce their size of production, or even slow down their trade expansion. The shrinkage in production and manufacturing industry can be seen directly from less orders and substantially reduced procurement volume of importers. On the side of retailers, they sell their inventory as soon as possible, sell at discounted prices to recover cash, and control inventory or even keep zero inventory. As the financial turbulence hit normal trade circulation, it results in the big fluctuation of exchange rate and depreciation of currency. As a result, the procurement cost will be higher. Trade is hit severely by both increase of purchasing cost and decrease of purchasing power. At this time, merchants need inexpensive goods more than ever before to compensate the loss caused by the financial shock. If the sales volume of low-price goods soars in one country or region, trade friction between trading countries will come forth, without exception during the time of financial crisis. If there are too many imported goods in a country, this will directly lead to the rise of trade protectionism and more trade barriers that violate the principle of free and fair trade. In the previous crises, countries set trade barriers to hold back low-price goods from exporters, with the purpose to protect its local industries from being hit, to lower unemployment rate, and to avoid spread of crisis to a larger scope. Such measures based on individualism will conversely further the depression of global economy. The measures, aimed at protecting domestic or local companies, are not good for recovery from a crisis. It will take longer for the economy to recover when it falls to the bottom. In this financial crisis, headlines of newspaper report that governments have invested a huge amount of money to rescue the market and central banks have greatly lowered interest rate consecutively to stimulate economy, drive consumption, avoid long-time economic depression, abate financial fluctuation and reduce the huge damage brought about by the crisis. At this very moment, it is both a risk and an opportunity for international trade. Risk means that companies and banks may go bankrupt at any time while opportunity means that consumers of the world need more low-price goods. The bull commodity market of the world has ended. It seems to tell us that people need to have more inexpensive goods with good quality when facing lack of money.

Under such an economic environment, how do companies on the trade chain face the situation? After each crisis, there are cheap shares and assets everywhere. It is perfect time for companies to reconstruct, merge and acquire. Those companies with abundant cash flow will expand and develop themselves at this time through the measures mentioned above. Exporters shall seize opportunities to cooperate with international brand companies. Strength of low cost will play a more important role in future trade.

Asian Financial Crisis – How to Learn From the Past

The 1997-1998 Asian Financial Crisis: How Did Asia Fall?

The great 1997 Asian Financial Crisis (AFC) affected most countries in Southeast Asia as well as other Asian countries. During the times of trouble, people in the AFC affected countries feared that the crisis would spark a global economic meltdown.

The starting point of the monetary crisis was the collapse of the Thai baht. In 1997, the Thai government’s decision of floating the Thai baht resulted in a financial collapse of the currency. While Thailand failed to maintain the value of its currency, the country’s economic condition was degrading significantly. The crisis resulted in layoffs in several sectors such as construction, real estate, and finance. Around 600,000 foreign workers and a huge number of local workers lost their jobs following the national crisis. January 1998 was Thailand’s lowest point; the baht reached its lowest rate of 56 to 1 US dollar. Meanwhile, before the crisis, the rate was 25 units to the dollar.

In Indonesia, severe financial crisis hit the country in August 1997. The government did not see this coming because in June 1997, the monetary condition of the country was at its best. The sudden crisis was triggered by numerous protests against the incumbent government. Political instability soon led to an awful financial and national security crisis. Intense devaluation started to develop in November 1997 and reached its peak in early 1998. The country lost 13.5% of its GDP in 1998 and the rate of the Indonesian rupiah plunged to 14,000 to 1 US dollar while before the crisis, 1 dollar only cost roughly 2,600 rupiah.

In South Korea, the crisis was also known as the IMF crisis. While the macroeconomic fundamentals of the national country were stable, many South Korean banks were burdened with non-performing loans in order to fund aggressive expansion of large companies. Huge establishments such as Kia Motors, Hyundai Motors, Samsung Motors, and Daewoo Motors asked for excessive loans and failed to return their debts. In 1998, Kia Motors was taken over by Hyundai Motors, Samsung Motors was liquidated, and Daewoo Motors was sold to the US-based company General Motors. At the same time, the value of the South Korean won continued to decrease. From the normal rate of 800 won to 1 US dollar, the rate decreased to 1,700 won to the dollar.

The People’s Republic of China was one of the few Asian countries that remained unaffected by the severe financial crisis. China’s renminbi (RMB) remained stable with the exchange rate of 8.3 RMB to 1 US dollar. RMB’s non-convertibility policy actually protected the currency from speculators that it helped China become one of the few Asian countries with the strongest financial stability. However, although China did not suffer from currency rate fluctuation or deficit in GDP, the AFC did slow down the growth of China’s GDP. To overcome this issue, the Chinese government soon implemented new policies to overcome the country’s financial weaknesses such as relying mostly on trade with the United States and having too many non-performing loans.

Unlike China, Japan was pressurized by the AFC but did not collapse. This is due to the fact that about 40 percent of their exports were aimed at Asian countries. Due to the crisis, most of these countries had to cut back on their imports and thus this affected Japan’s economic condition. To overcome this problem, the products that were supposed to be exported to Asian countries were sold massively, which caused the rate of the Japanese yen to fall to 147 yen to the dollar. From 1997 to 1998, Japan’s GPD continually dropped from 5% to 1.6%. Even worse, in 1998, recession occurred due to heavy competitions between manufacturers, which lead to more bankruptcies.

On the other hand, other countries in Asia such as the Philippines, Hong Kong, Malaysia, and Singapore also underwent financial crises. In general, these countries suffered from GDP deficit. While the Philippines suffered from 3 percent GDP deficit, Malaysia lost 5 percent of its GDP during the AFC.

IMF’s Confession of the Wrong Handling of the 1997 Asian Financial Crisis

During his Asian tour in February 2011, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, confessed IMF’s mistake in handling the 1997 and 1998 Asian Financial Crisis in front of the president of the Republic of Indonesia, Susilo Bambang Yudhoyono. While handling the crisis, the organization did not take into account about the differences in political and historical condition of each Asian country. As a matter of fact, those differences are significant as different issues require different handling approaches. During his speech, Strauss-Kahn said that the IMF did some things right but he also humbly admitted that “we also did things wrong, and we have to accept this”. By accepting the mistake, Strauss-Kahn also meant that the International Monetary Fund has learned a lot from the AFC.

How to Prevent the Financial Crisis from Recurring?

To avoid the AFC from recurring, Asia should learn from the past. As Asia progressively develops, competition is never static in this region. Many things have to be improved and reformed due to years of delay. For these reasons, we cannot take for granted the current momentum of Asia’s economic growth as well as the surfacing markets. Indeed Asia still relies heavily on imported goods and technology from developed countries. Yet, if economic performers in Asia are not careful enough to stick with themselves in the trade cycle, this region may experience another financial crisis.

Looking back, the AFC was triggered by various factors such as too much leverage in the corporate sector, bad credit management, and weak macro-management in handling problems like capital markets, monetary policy, and fluctuating exchange rates. Another causal factor of the crisis was governmental issue, which was also referred to as crony capitalism.

Based on Dominique Strauss-Kahn’s statement regarding IMF’s mismanagement of the Asian Financial Crisis, we can see that the large portions of advanced countries ignored the real factors which triggered the AFC from happening. Without real handling of the root problem, flawed macro-economic theory, lax fiscal policies, weak financial supervision, and insufficient monetary policy over an eagerly developing continent will be fatal.