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The economic crisis, to me, started earlier this year without nobody really aware or care about it since it is at a beginning stage. Nobody realized that it will burst later on. Around middle of this year, it started to show the actual situation. Everything started from U.S the country with the biggest market, and the actual problem lies on the sub-prime issue.

Not everyone aware of this but I am very thankful to our central bank, Bank Negara Malaysia for having a tight rules for banking sector. The sub-prime issue in this case affected by their real estate/property mortgage. Due to lack of control and less credit monitoring, the bank over there simply approve any loan application submitted. The circle is started something like this.

Let say myself, with low income wanted to apply for loan to purchase a property. My actual intention is to sell it later since the price will go up when the property development completed. The bank, with less credit control, specially to ensure I can repay the loan in what ever situation, approve my loan application. Once the property completed, I sell the property at higher price, make some profit and make a full settlement of my loan. So, that’s how the bank make the business and how I made some profit from the property. The buyer of my sold property might do the same thing, which, if you think carefully will make the price of the said property become too high. There is where the problem started.

When it reach to certain stage, the price is consider as too high, and of course nobody at that stage would be willing to take it. As such, the circle is ended there, and of course those who whole the property through loan with the hope to resell it will face a difficulty. The chain effect of this is that the bank having a problem with loan collection.

The bank at the same time also invested/mortgage the paper of the said property to other investment institution with the hope to make more return but again, to certain extend, it is just a paper and reached the limit. Here is where the entire banking system started shacking and causing a lot of problem.

Last Friday, as usual, an important news released from USA call Non-Farm Payroll (NFP). As expected it will be a bad news even though the bill for $700bil rescue approved and accepted. Looking at the forex market, with all major pairs such as EUR/USD, GBP/USD for example, we can see how it affect. At the same time now, even EURO also having a problem with the currency reached to the lowest compare to USD in 12-month period.

In Malaysia, some companies already retrenched their staffs, some already exercised VSS and run for the second round of VSS. There might be more will happen during this economic turmoil. To me, we have to be thankful to have a job, if you like to be an employed person. If you are self-employed, good enough when you can survive at least for the basic.

It is the time to cut all the unnecessary expenses and stay with the required expenses for the next 1-2 years

This entry was posted on Sunday, October 5th, 2008 at 8:09 am and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.