After quietly celebrating Christmas Day, many people must now face reality and ask themselves: What’s ahead in 2009? How are we going to cope?
The past year, with all its problems, is better left forgotten. The new year always brings new hope, but with last year’s problems threatening to worsen and bring about even bigger problems, many people now vacillate between fear and hope.
What caused the fears? Early in the year, thousands of sub-prime mortgages with teaser rates, like the option ARM (adjustable rate mortgage), adjusted to higher monthly payments that the homeowners couldn’t afford nor refinance, resulting in tens of thousands of foreclosures and home prices plummeting. By the second half of the year, even those who had fixed rates couldn’t afford to refinance because the value of their homes sank lower than the value of their loans.
The real estate bubble burst, which many knew were coming but didn’t know exactly when, triggered a domino effect that crippled several sectors, particularly the financial institutions on Wall Street. One by one, the Wall Street giants collapsed – Merryl Lynch, Lehman Brothers and Bear Stearns – followed by mortgage titans Fannie Mae, Freddie Mac and Countrywide and several other mortgage companies. Big banks like Washington Mutual, Wachovia and Downey Savings, which had the biggest exposures to sub-prime mortgage, also went down and were gobbled up by the bigger banks.
The over-extended financial institutions froze lending and many more homes were foreclosed, putting further pressure on the economy. With credit tightened, consumers reduced spending, and small businesses could hardly survive, with very few banks willing to lend them short-term loans to cover day-to-day operations. This resulted in more job losses, more foreclosures and more business closures.
At about the same time that homes were being foreclosed and credit clamped down, gas prices soared to astronomical heights, further crippling consumers and businesses. Car sales plummeted, retail sales sank to record lows and more job losses and bankruptcies followed.
Meanwhile, several states, such as California, Nevada and Florida, which were the hardest hit by foreclosures, are reeling from huge budget deficits that are threatening to adversely affect education, public health and medical care.
As the year ends, scores of retail outlets are reportedly closing shop in January or February, the Big Three car companies – General Motors, Ford and Chrysler – have scheduled plant shutdowns, and several commercial real estate companies are reportedly headed towards bankruptcy. This can only mean more layoffs, which would trigger more company closures and more layoffs.
Amid all these turmoil, Wall Street panicked and sent the Dow Jones Industrial Average below 8,000 several times and produced historic lows in the Dow Jones’ 112-year history. And as the saying goes, when the US sneezes, the world catches cold. Each time, the Dow Jones dropped, stock markets from London to Tokyo sank with it.
As the US dipped into recession, most of the rest of the world followed. England, France and Japan, among others, are now in recession. Emerging economies like Taiwan and China were also hit hard as exports waned, causing factories to shut down and resulting in massive layoffs.
The Philippines has not felt the full blow of a recessive economy with the inflow of remittances from overseas Filipinos peaking this month. But economists predict that Filipinos will feel the impact of recession sometime in the middle of next year. By then, tens of thousands of displaced overseas Filipino workers (OFWs) are expected to return home to pad the already high unemployment rate. This will surely deal a crippling blow to the economy since OFW remittances comprise almost 14 percent of the country’s gross national product (GNP) and is arguably the only thing saving the Philippine economy from total collapse.
The country’s real estate industry, which almost totally relies on purchases by overseas Filipinos, will fall from its lofty perch; exports will suffer; call centers will be reduced to the minimum; and unemployment will rise dramatically.
Meanwhile, an election is forthcoming in 2010 and political spending will surge in the second half of the year, adding fuel to the already inflationary situation. And with an inept and corrupt national leadership at the helm of the ship amid all these turbulences, there is little hope the country would escape unscathed from the global economic storm. The worsening economic depravation, coupled with the people’s frustration over the Arroyo government’s perceived corruption, failure to alleviate poverty, lack of credibility and human rights abuses, can trigger a military coup or another People Power revolution.
In the United States, hopes are hinged on the “change we can believe in” that a soon to be installed President Barack Obama promises to bring to Washington. Even before he could sit down at the Oval Office, Obama has lined up an ambitious economic stimulus and recovery program that Americans have not seen since President Franklin Delano Roosevelt’ New Deal that brought America out of the Great Depression in the 1930s.
As we approach the year of conflicting fears and hopes, we can only pray that our leaders, both in our adopted countries and in our homeland, would make the right and just decisions so that we could end 2009 in a much better fashion than we are now closing the year of frustrations.