With heated discussions now reaching the halls of Congress, the economy has been the top news story in recent weeks. Many who approach the subject find it hard to understand just how we got to where we are. But most recognize one thing. Our economy is — as our president put it — “in a slowdown.”The trouble all started a couple of years ago when the U.S. housing market took a turn for the worse.The criteria for approving loans were loosened greatly as banks began to pump out “subprime mortgages” or house loans to high risk individuals. Many who should not have been given loans because of poor credit ratings were able to get their hands on cash with ease.Banks were giving out these questionable loans because they were able to turn around and package them in securities they then sold to others. These bad loans continued to make their way throughout the financial sector as individuals bought and sold them without fully knowing their risk.When borrowers started failing to pay on their loans in record numbers, it spelled disaster for many financial companies. The bubble burst, creating a rift which has sucked up several major firms across the economy. Companies like Lehman Brothers — established in 1850 — plummeted in value.The “mortgage meltdown” continues to plague other sectors of the economy outside of the lending industry. The result has led to the “credit crisis” we face today.The U.S. banking system serves to facilitate the transfer of funds from those looking to save their money to those needing to borrow it. This system is what allows businesses to make purchases on credit, students to get money for college and countless other daily activities.Because of the shockwaves in the financial system, exchanges of money that were once seen as having little to no risk are now being met with hesitation.This paralysis in money lending means businesses cannot operate as they usually would. With the tightening of credit, new investments in capital and labor are hampered, as are purchases by companies.Hence the “slow down.”The economy for many seems to be an abstract, disconnected idea from their daily lives. Unfortunately, the problems on Wall Street are having real effects on “Main Street” (to borrow the politician’s term). Here are some real ways in which recent events may affect you: YOUR BANKPerhaps the most frightening aspect of this crisis has been the bank failures. Wachovia, Merrill Lynch and Washington Mutual — hardly fly-by-night companies — all went down. Luckily for their clients, these banks were snatched up by other banks that took on their liabilities and thus guaranteed the accounts. Also, it’s important to remember the Federal Deposit Insurance Corp. will back up any single account up to $100,000 if your bank goes under.YOUR JOBWhile job creation this year has been unimpressive, the continuing financial woes will only continue to stymie jobs.  Alan B. Krueger, Princeton University economist, believes cutbacks will hurt more educated workers more so than in the past. Usually it’s those with high school degrees or less who see the most job losses. But, unemployment has actually fallen slightly among the less educated workforce. If your job relies on customers who make transactions on credit or is in the real estate or financial sectors, it will be more susceptible to cutbacks.YOUR LOANIf you are receiving federal student loans, they will continue to be available, but their amounts can be capped. Private loans may be harder to come by and interest rates may rise 1 to 2 percent, according to The New York Times. While mortgage interest rates are high, they have been relatively stable. Any kind of loan will be subject to more scrutiny — mainly a higher credit score requirement and the prospect of higher interest rates.YOUR CREDIT CARDCredit card companies, such as Capital One Financial Corp., have already raised some of their fees and interest rates on cards. Those who make less money will find it tougher to get a new line of credit.  Companies are tightening up their guidelines for issuing cards and sticking with solid credit scores.YOUR TRIP ABROADThe credit woes of the U.S. economy have had an international impact. Besides causing other markets to falter, the slumping economy has caused the dollar to continue to slip relative to other currencies. Americans will continue to see less favorable exchange rates than just a few years ago.Deregulation, dead beat borrowers and greedy men smoking cigars have all been blamed as the problem. While Congress struggles to patch up the sagging economy, it appears the credit issues facing U.S. will persist for the foreseeable future.
 
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Contact Mark Macmurdo at [email protected]