Freedom Debt Management - What Works?

Is there such a thing as Freedom debt management? Recent figures suggest that the rate of debt among consumers in the western world has been rising at a phenomenal rate. Not only is the rate of debt increasing but the rate of default on that debt is also rising fast. How did this situation come about?

If you are in debt then to understand your debt situation it is important to understand the role that you play in the wider economy and how things beyond your control can have a direct impact on your financial well-being. If you are to learn the true meaning of Freedom Debt Management then it is also important for you to learn about the wider economy and be on the look out for warning signs.

To fully understand the current situation we need to go back to the time between the late 1940s and the 1960s to what has become know as the baby boom. The catalyst for this baby boom was the end of world war two. Many soldiers returning home from the war saw it as an opportunity to settle down and raise a family. The result was a large increase in the number of babies born in the post war years. The baby boomers as they are now called are the generation of adults who were born in this post war period and play a key role in today’s economy.

Fast forward to the 1990s and to the internet boom.

In the mid 1990s global interest rates were high. The dawn of the internet in the mid 1990s helped to spawn a whole new industry. It was this industry that investors piled into. The pension funds of the baby boomers played a key role here as investment fund managers sought to maintain high returns on their funds. The millennium bug fear of 1999 help to generate further interest in the internet and in the technology sector in general.

In 2000 after the hype of the new millennium, Internet stocks were trading at an all time high and started to falter. The promises of vast wealth never materialized and the share prices of these internet companies began to fall. The share prices fell hard and fast.

In response to this stock market crash or the dotcom bust as it has now become to be known the Federal Reserve began to cut interest rates. Then following the terrorist attacks of 9/11 the Federal Reserve continued to cut interest rates. By lowering interest rates the Fed had, in effect, paved the way for the housing boom.

The housing boom

Many people feeling burnt by the intangible and transient nature of the stock market and share ownership opted for what they thought was a more secure investment of “bricks and mortar”. Around the same time a lot of books and media commentators appeared on the scene espousing the value of investing in real estate.

The easing of credit and global interest rates following the dotcom crash and the terrorist attacks of 9/11 created an environment where everyone had access to credit. As a result the demand for housing began to soar.

This rise in demand was part fuelled by Mortgage sales people that worked on a commission only basis. Some sales agents went to great lengths to increase their sales. Banks have been accused of predatory lending. This is where the banks and financial institutions would lend, through mortgage brokers to individuals who could not necessarily afford the repayments. N.I.N.J.A. loans became the buzzword of the day – No Income No Job No assets. The money poured into real estate and property.

The financial institutions themselves, in order to reduce their risk engaged in a practiced called securitization. This involved the practice where they took all the mortgages (and associated cash flows) that they had written to people buying property and created an investment vehicle. The banks then went and sold these investment vehicles to other banks and financial institutions and investors.

The pension funds of the baby boomers were looking for a new home. First chasing stocks during the dotcom boom and then into property. In both situations an asset bubble formed. Now I’m not saying that the pension funds were the only cause of the bubbles in tech stocks and housing. Numerous factors were at play. In my opinion the key factor in both bubbles was the collective mania that investors in both tech stocks and housing experienced. In both cases commentators spoke about how ‘things were different this time’. In reality nothing had changed and it wasn’t long before market fundamentals came back into play with a vengeance.

Hard reality hits home

‘All good things must come to an end’ or ‘everything that rises must fall’ – take your pick of the clichéd sayings. In the end everyone had a suspicion that things couldn’t go on forever. The credit crunch which started in mid 2007 is now biting everyone hard.

We now have a situation where the rate of defaults on loans is rocketing. Debt is becoming a real problem for a lot of people. Every day new figures come out about the number of people declaring bankruptcy and the number of homes going into foreclosure. The future that once looked so bright now looks a distinctive shade of grey.

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Freedom Debt Management – What Works?

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