The ongoing and worsening Credit Crisis continues at a rapidly escalating downward spiraling pace. The various bailout programs offered by governments and Central Banks worldwide have done absolutely nothing to help the everyday citizen on the street.

These bailout programs have only worsened the financial crisis worldwide, and have adversely impacted our once capitalistic ways of life by having more and more centralized government control over our various major industries such as the automobile, airline, and health "care" industries as well as the last remaining firms on Wall Street (both of them).

Most obviously, the banking and mortgage market systems have been dramatically impacted by the nationalizing of both Fannie Mae and Freddie Mac who purchase most residential mortgages nationwide. FHA continues to represent a larger percentage of the national mortgage market although the FHA insurance system (and SBA) themselves are close to being technically insolvent sadly.

The first major financial meltdown of this century was probably the 2000 Nasdaq meltdown. Do you remember when the Nasdaq index hit near 5,000 in March of 2000 just prior to the High Tech Bust? This was followed shortly thereafter by the Telecommunications Meltdown (i.e. Global Crossing, etc.). Few people may remember that the Telecommunications meltdown was actually a bigger financial disaster than the High Tech meltdown as the stock and bond losses were staggering.

The official start of the latest financial crisis officially called "The Credit Crisis" began back in August of 2007. However, major sub-prime lenders such as New Century Mortgage (based in Irvine, CA) and others were shutting down well before this official starting date. This mortgage collapse was also followed by a collapsing structured debt product meltdown.

As I have been saying and writing for years, the largest banks in America are all technically insolvent primarily due to their off balance sheet derivatives investments (Credit Default Swaps, etc.) which they seem to "forget" to calculate in their earnings reports each quarter. Sadly, their current losses may far exceed the entire value of their respective financial institutions (cash, stock value, interest income, etc.). Local credit unions and community banks may be a much safer place to put your money than in the largest banks nationwide.

The Credit Crisis, again, is primarily all about the unwinding of the derivatives markets worldwide which may include structured investment or debt instruments such as Credit Default Swaps (a glorified form of a bet which may be hedged or insured by a third party which is probably a shell entity based in the Caribbean as many of these "insurance companies" actually were shown to be in the past), Collaterized Debt Obligations (or Mortgage Backed Securities pools - a package of real estate mortgages in the hundreds of millions of dollars), Structured Investment Vehicles, or other complicated financial entities which are really only understood by a few Ivy League MBAs.

I personally expect the economy to get much worse in 2010. I hope that I am wrong. The more that I research these financial topics, the more concerned that I get in regard to the worsening financial markets and overall economy. Again, the word "crisis" in Chinese means both "danger" and "opportunity" so we all need to focus on the possible positive aspects of this worsening financial meltdown.

There will be some incredible real estate buying opportunities for literally "cents on the dollar" if you know where to look both in your local regions and well as across our nation. Banks will have to unload their non-performing properties and mortgages for much needed cash in the near term.

Coincidentally, our U.S. Dollar may also be worth "a few cents on the dollar" too as hyperinflation continues to escalate partly due to the U.S. Treasury's full speed printing presses which keep creating dollars "out of thin air". Many banks literally are completely out of cash since so few banks actually keep much of their cash reserves on hand.

In fact, some banks may only keep 1% to 3% of all of their deposits on hand primarily in the form of ATM money as they lend out the bulk of their deposits (real estate, business, auto, and consumer loans) via our highly leveraged Fractional Reserve Banking System at sometimes 10 to 50 plus times their total current deposit balances.

For example, your local bank may have $1 million in total bank balance accounts, but they may leverage those assets ten times (or $10 Million in this example) in the form of business, personal, credit card, or real estate loans to others. In the USA, only 3% of all money is currently in the form of actual hard currency (coins or dollars). The rest of the "money" is actually computerized, digital money.  

Out of adversity, comes opportunity. We either stick our heads in the sand and believe that things will get drastically better in our economy, or we try to focus on the opportunities which may be just around the corner. Happy 2010!!!!!

*** Linked to this same blog is a graph which I created a few months ago to better illustrate my perceptions in regard to what the Credit Crisis is really all about worldwide.