Dark Clouds Looming Yonder

I couldn’t help thinking about the effects of the recent financial crises that hits the US and Europe. If giants like AIG and Fortis are reeling and needs its governments’ shoulder to steady its wobbling posture. How will banks in the Philippines take such economic punch if its own government can’t even make ends meet in balancing its own budget?

Like most OFWs, I send my earnings back home, in a bank inside a “time capsule”. I couldn’t touch nor withdraw it until a certain period expires. My anxiety only increases because our PDIC guarantees only a fix amount for each depositor, unlike in Europe, where governments agreed to guarantee entire savings to boost confidence and prevent withdrawals by depositors. So if you have several accounts in your name, you might as well seek intervention from all the saints you know that this catastrophe won’t hit your bank directly.

I’m neither an economist nor a financial analyst. All I can do is put together an intelligent assumption based on “street level” observation. US economy thrives on credit. Americans buy almost everything on credit, from the roof over their heads, to their cars, utilities, entertainment and even their daily sustenance. If you pay cash, either you’re rich or you got something to hide from the Feds. Outstanding accounts are settled every month and salaries shrunk from soaking in bills. For an average Joe, his lucky if he could save 10% of his monthly wage after these deductions.

I first took notice and sense something’s wrong when they started foreclosing houses in the US. Most homeowners blamed financial institutions for their predicament. I don’t know why when all this creditors did was lent money to buy houses, cars and other necessities needed to live a decent life. Of course there’s the issue of exaggerated interest, but “lendees” are supposed to know the rules. It may take ten or twenty years to totally pay Joe’s loans, but as long as his up-to-date on his payment, some extra cash saved on the side, everything’s fine.

Perhaps problem began when Joe started living the “American dream”. He bought a 4 bedroom house with a nice lawn, complete with swimming pool, instead of a respectable 3 bedroom for his wife and two kids. He bought an SUV for himself after he mailed the final payment for the family’s station wagon. Inadvertently, Joe stretched his credit to its limit. When cost of commodities took off worldwide and economic slowdown hit the US, Joe’s income diminished, resulting to foreclosure of his possessions.

Supposing1% of the population has Joe’s dilemma, I think that’s more than enough to bring down even the most secured bank in the US. What will banks do with all these properties? They’re banks; it needs money, not houses and cars, to continue their business. Like dominoes, every institution one way or another connected to Joe, tumbled down. And like the “butterfly effect”, the fluttering of Joe’s artificial delusion was felt halfway across the globe. A dream prodded by celebrity endorsed advertisement sponsored by corporate America.

I’m afraid this is just the beginning. I see a storm coming from the horizon. Pray it doesn’t make landfall.