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    Friday, March 06, 2009

    The Big Freeze

    I came across a video on Financial Times website. The video is a report by investment editor, John Authers, on the financial crisis that has hurt the world's economies, developed and developing alike. A financial crisis that was rooted from the US subprime mortgage sector.

    As Mr. Authers said, it may started from US subprime mortgage, but the implication is far and wide. Financial companies are collapsing, bringing with them others in different industries. As purchasing power hit by streams of layoffs, profits across the board are tumbling down. In an interconnected economy, the effects are felt globally and rapidly.

    As Americans spend more than they earned, fueled by ever-increasing debt, the momentum has carried them deep in debt. So deep, that it would take years to unlever it. Historically, housing price has always been increasing, but in drying demand caused by mortgage defaults, price no longer holds. Since the price is declining, would that increase further defaults as people holding mortgage higher than the actual price of their homes?

    James Melcher of Balestra Capital, called the subprime mortgage meltdown a year ahead, profiting tremendously from crisis. Mr. Melcher believes that the worst may have yet to come. People are desperate to believe the market has bottomed, that it can only go up from now on. Opportunities to profit?

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