Friday, 7 September 2007

The looming money crunch.

It is said that a fool and his money are soon parted. This is particularly so if that fool is in the money lending business !
We have seen a huge panic on the United States stock exchange because of problems in the sub-prime home finance sector. Put simply, restraint has flown out of the window and housing loans have been offered on a no deposit basis to people the traditional lenders would not touch with a barge pole.
As a result there has been a deluge of defaults - and a market correction has put a clamp on the criteria for approving loans.
The effect here in Australia has been minimal - but we are now facing a similar debacle due to the practice of some retailers to seek sales by using extended credit as a tool.
The media is full of offers of " buy now - pay later " deals - in many cases offering goods on the basis of no deposit - no interest - and no repayments for up to four years.
Somewhere down the track that repayment period is going to fall due - and that's when the chickens will come home to roost.
Some people will use the " pay later " scheme wisely, but many others will take the view that " maybe they will win Lotto before they need to pony up the money " - and still others will delight in having a huge plasma TV to enjoy for a few years - before the inevitable day when the bailiff comes to repossess it.
These offers seem to apply mostly to big ticket items - expensive bedding deals and electrical goods - none of which have any great residual value once they are second hand.
Now if you are in the business of investing money - it might be a good idea to think long and hard about which finance houses are behind these " too good to be true " offers.
That might just be where the wise people choose not to invest their savings !

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