The Federal Reserve acts as a controlling influence on the national and world economies by tightening credit when the economy gets too ‘hot’ and lowering credit interest rates and supplying money to banks when the economy slows down. Too much tightening slows down and stalls the economy, while too much credit and money push inflation rates, causing price increases. The Fed has to balance too much with too little to make sure the economy stays ‘level’.

Now the question is, should the Fed do something to bail out many of the Subprime mortgage companies/banks that are threatened with bankruptcy because of the increasing default rates caused by the housing bubble?

According to various sources, the Subprime mortgage covers between 21 and 29% of all mortgages existent today. That means that there is the possibility of that many mortgages defaulting. The odds of even a significant percentage of those mortgages going belly up are pretty small, but the perception that they might is causing the market to quiver and quake at the very thought.

The subprime market is small enough that it wouldn’t affect the overall market monetarily, if it were to have problems. But the fear that it’s inflicting is causing many smaller investor, and a few larger investors, to react in a protective or preventative manner; Small investors are moving money out of the market in fear that banks will tighten up credit, which will cause businesses to curtail or cut back on growth, which will cause layoffs, price hikes, shortages, postage stamp prices going up, and cats and dogs living in sin

With the media constantly inundating the public with the news that house prices are going down, mortgage companies are hurting, and consumer credit qualifications are becoming more stringent, it’s no surprise that there is a little bit of panic.

Now,… Don’t Panic!!

If you are staying in your home, not buying a home at the moment, or getting ready to sell your home, you should have no problems. Weather the storm, and stay the course.

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Wikipedia : Subprime Meltdown