What Does The Stock Market Implosion Mean For Your Online Biz?
Small Business Internet Marketing Blog:
The news this week is pretty dire. On the heels of the US Government’s bailout of Freddie Mac, Fannie Mae and AIG Financial, stock markets in the US, Russia, Japan and elsewhere are suffering tremendous losses. The NYTimes paints a linkbait-worthy, interactive picture of the financial industry’s collapse. If you’re anything like me, this news brings on some anxiety and fear – neither of which are good for startup businesses or those seeking to grow. Thus, I figured it would be worthwhile to give a brief synopsis, discuss the causes and symptoms and make some predictions and suggestions for the search industry and those in online marketing on how to weather and even prosper in the upcoming storm.
First, there’s a number of items causing the turmoil:
* Subprime Mortgage Crisis – This BBC interactive graphic piece does a good job explaining the problem, but in essence, lenders discovered that by leveraging the bond market, they could issue loans to far less credit-worthy borrowers at higher, variable-interest rates. With far more people able to afford mortgages, housing prices continued to rise from their already high levels in the early 2000s. From there, the path was obvious. Interest rates and foreclosures went up (due to both the insolvency of some less-than-ideal borrowers and the rise in variable interest rate loans), making houses unaffordable. Defaults led to price drops which led to more homeowners finding the price of their mortgages higher than the value of their homes and walking away. This spiral led to even more price falls and defaults, which eventually took their toll on the investors in the subprime mortgage bonds (and the banks that issued them).
* Gas & Energy Prices – High oil prices stem (most probably) from rising demand in emerging economies, middle-east conflicts, natural disasters and an enormous increase in speculation about so-called “peak oil” (the point at which Earth’s accessible oil supplies start to dwindle).
* Inflation – Gas prices impact an incredible range of goods and services, including virtually any product requiring transportation. Higher oil prices also drive up energy prices, which cause a rise in consumer and business costs across the board.
* Bankruptcies/Insolvencies of Financial Sector Firms – The events surrounding Freddie Mac, Fannie Mae, Lehman Brothers, AIG and Merril Lynch all contributed to the last 7 days of upheaval that resulted in an extreme confidence drain on investors.
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