Credit crunches or commons….?


“The greed proved its full power in America again. Starting with 1990 the house prices began to rise continuously, reaching incredible prices. In 2001, 2002 and even 2004 the Central Bank of America reduced the interest rate continuously reaching the lowest interest rate in 2004 (which was 1%) of the past 50-60 years. Mortgage rates fell, the banks opened up to the public, banks of the “subprime” category gave loans based only on demand. People hurried to get mortgages not necessarily to buy houses they live in but buy houses with property development purposes. In this context house prices exploded until the economic situation changed its course. Economy is like nature, today it is sunny tomorrow it rains. Everything changed from economic relations to mentalities. We are faced with a new reality which was mainly determined by inflation, due to the fact that very small rates of interest can easily lead to economic chaos.
When the inflation became threatening the Central Bank of America tried to fight against it by raising the interest rates. Banks started to raise interest rates and increase the price of mortgage. This way people couldn’t afford to pay monthly rates anymore. As a consequence house prices went down dramatically.” (“Life on loan”, Revista 22, No 41)

I believe things happen as follows: I bought a house on mortgage worth 300,000 pounds. I started to pay mortgage and managed to pay 15,000 pounds. Meanwhile the economic situation changed and the price of my house fell to 200,000 pounds. Since my house is worth 200,000 now and I’ve only paid 15,000 I must be mad to pay further, isn’t it? I take the house key and give it back to the bank and this way I get rid of the house. I have lost 15,000 pounds but I have finished paying of this mortgage. The house belongs to the bank now and I do not have any more financial obligations towards the bank. I go to another bank, I get a mortgage of 200,000 and buy another house, very similar to the one I had, or the same house if they put it back on the market. This way I save 85,000 pounds.
This is how the credit crunch started.

You see, if instead of this greed and thirst of wealth people would have stopped from gathering more and more money, if they shared their goods instead of fighting for personal wealth this world-wide economic crisis wouldn’t have started for sure.
Isn’t it better to return to commons? What do you think?



5 Responses to “Credit crunches or commons….?”

  1. Kawsu Ceesay Says:

    Hey guys, how do we relate this issue to the concept of the Commons? Can we make any link between the story and the concept of the Commons ? Time to brainstorm please….
    By Kawsu Ceesay

  2. Chikaj Says:

    The entire systemic failure (credit crunch, market volatility, asset loss) experienced at the peak of what seemed like a western recession was largely caused by avarice. The credit crunch was evidently a result of greed on the part of the customers and also the financial institutions that facilitated such loans. It is indeed incredible but the truth is that some banks and mortgage companies went as far as giving over 100% loans for houses that ordinarily would have required about 25% deposit of the house value- all in the bid to make profit through interests. Surely, pooled resources (Commons) like you mentioned would have averted such financial tsunami.
    In line with your view, I will post a blog that gives an insight into the effect of financial crisis on the “rich”.

  3. sergiu sidei Says:

    Think about what America was before British colonization? After a bit of literature reading you will find out that it was an open territory, inhabited by Native Americans called “Red Skin Indians”. In my opinion, in that time it was a true commons. Those people were leaving in community and were sharing everything. It is very important to know that in Native American language, there is no equivalent word for “I” or “my”. The idea of common was so strong that everything was considerate to belong to the entire community, to be “ours”. They were sharing a space following a very strict, unwritten regulation in order to protect it and to sustain it. Mother Nature gave them a good life in return for it.They use to say “We get freedom in exchange”. Once newcomers have restricted lands and the woods, saying “this is my land” or like an old English parabola is saying ”Bigger fences gives you good neighbors” they started sowing the idea of greed in their minds continuing to grow, they gave birth to capitalism resulting local, then regional and after all globalization brought us a word wild crises of all kinds, not exclusively economic . It is for sure that we can find a link between the credit crunch story and the concept of the Commons and I consider it essential to my question: Isn’t it better to return to commons? What do you think?

  4. rlinton Says:

    I’m sorry to burst the bubble here but I think all of this talk about the commons is getting a little utopian. There are problems with the notions of the commons. Commons can only exist through inclusion and exclusion. The commons cannot encompass everyone – there are limits on resources, especially in the context of sustainability. Who decides who is let into any particular commons and who is not? What if there is a population explosion within a community and the commons can no longer meet everyone’s needs? What happens to the people who are left out of the commons? Is movement between commons permitted, or are we born into a commons and we have to stay there for the rest of our lives irrespective of the quality of the commons?

    I’d also like to point out that your scenario about how we apparently got into the credit crunch is massively flawed. If you no longer want your property you don’t just hand back the keys to the bank. You either sell or you default on your payments and lose the property. If you sell you will still owe the bank £100,000 and you’ve lost the money you paid off and your deposit. Therefore you are unlikely to be in a position to buy elsewhere. If you default, you lose your deposit, the money you’ve put into it and whatever other legal consequences are and you can bet that no bank is going to be in a hurry to give you another mortgage. What you’re talking about are the consequences of the credit crunch, not the causes.

  5. diatezuam Says:

    The subprime mortgage crisis is an ongoing real estate and financial crisis triggered by a dramatic rise in mrtgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.
    The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005– 2006. High default rates on “subprime” and adjustable rate mortgages (ARM), began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgage in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult . Defaults and foreclosure activity increased dramatically as easy initial trems expired, home prices failed to go up as anticipated, and ARM interest rates reset higher. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to be a key factor in the global economic crisis, because it drains wealth from consumers and erodes the financial strength of bankink institutitons.

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