Bailouts, world depression and home loans, a guide.

Bailouts, world depression and home loans, a guide.

As we all now we are immersed in the biggest economical depression since the Second World War. We have seen many peaks and troughs of the capitalist system, but this breaks the record. It has made many old believers to start doubting in the system altogether and the usual sceptics to voice out their prophetic warnings.

One of my favourite is a quote I read the other day by Karl Marx himself: “Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism. (Das Kapital, 1867)

Sounds pretty ominous doesn’t it? The fact that communism has already fallen (allegedly) does take a little of the poison from the quote. Unless the apparent death of communism is just a ruse.

The truth is that capitalism is in trouble. One of its many problems is that it relies in ever growing expenditure and consumerism to survive. How sustainable that is in the long run, is still to be seen. Governments are reacting like Karl Marx “predicted”, the only way they know, by injecting as much cash as they can into the banking system. To the extent that many of the banks aren’t far from being nationalized.

But what do these bailouts really mean for you and me? Putting money in a bank is just giving banks something to trade with. The only thing they are going to do is invest it by loaning it. Having more money to loan out will a) make it easier for banks to approve loans and b) provide capital to be reinvested in the system.

The problem is that loans are still harder to contract because the control measures have become stricter, and for good reason. This means the credit checks are more stringent and the setup fees are higher.

There is an upside though. The interest rates are at a record low level. If you have the cash and the credit score you can get some amazing finance deals. For instance, you could contract a thirty year mortgage at the incredible fixed rate of 4.5%. Fixed interest for such a low price at such a neat price is really tempting.

So if you have been financially wise, have saved for a rainy day and you have been careful with your expenditure and credit score you might be in the right circumstances to buy a house at dream interest rate prices.

Government bailouts have included insured home loans as part of the injection into the economy. All this means it might be the time to invest in a house if you have the right circumstances. However unless you take on a fixed rate interest you msut be careful to budget for sudden raises in the interest rate.