Banking Panic Begins In Great Britain
British disaster comes on heels of US sub-prime mortgage crisis.
by Ian Mosley
There are growing signs that a world-wide financial crisis may be brewing. The recent sub-prime mortgage crisis in the US is now being surpassed by a run on banks over in Britain.
Perhaps, the clearest sign that the “party is over” came on Tuesday, Sep. 18th, when the US Fed cut the prime lending rate by half a percent. This is an extremely significant change signaling that our economy is in serious trouble.
Over the last four years, the federal reserve rate had increased from a low of 1.00 percent in June, 2003, to a recent high of 5.25 percent. An increasing interest rate is a sign of an improving economy. Our economy however is far from stable. We’ve outsourced millions of manufacturing jobs. We’ve piled up a massive nine trillion dollar debt thanks in part to Bush’s empire wars. Millions of Americans have bought overpriced housing over the last several years. Many of these people have variable rate loans. Some of them have “interest only” loans. If the interest rates go up too high, millions of Americans won’t be able to pay off their mortgages. Because the price of housing has dropped, the mortgage companies will lose money each time a borrower goes bankrupt.
The recent near-collapse of America’s largest mortgage lender, Countrywide sent shock waves through Wall Street. If the biggest mortgage company fails, dozens of other mortgage companies could fail, and the whole economy might be dragged down with them. A recent news article reports “The nation’s largest mortgage lender (Countrywide) will hand up to 12,000 of its employees pink slips in the next three months in an effort to stay afloat during the home-loan crisis. After cutting 900 jobs earlier this month and 500 in August, Countrywide Financial Corp. announced last week that up to 20 percent of its nationwide work force could be laid off.”
While cutting the prime rate will ease the pressure on millions of people with variable rate loans, this doesn’t change the fact that housing prices have dropped substantially and millions of people, who were making money by speculating on real estate are effectively out of business and possibly in debt. American jobs continue to be outsourced, and a half percent reduction won’t help a software engineer, who has just lost his high-paying job at MicroSoft as Bill Gates outsources these jobs to India.
The US isn’t the only nation facing a financial disaster. For the first time in over one hundred years, the United Kingdom is experiencing a severe financial panic and a run on banks as British people rush to get their money out of a collapsing financial institution, the British equivalent of our savings and loan associations. (more…)
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