Tuesday, September 30, 2008

Economic Crisis Explained

For a brief explanation of where this crisis came from, watch the first 10 minutes of this video from the Economic Department of Princeton University.

You will see just how "fragile" the economic structure of the failed companies are.

It is almost the corporate equivalent of living off your credit cards and using one card to pay for another cards monthly payment, using the proceeds to flip paper and hopefully make enough money for profit and paying next months payments.

This is of particular importance to the real estate market for pricing support, this type of short term credit which allowed properties to be flipped has become severely contracted, which will hurt prices (correct prices) for properties.

More than ever, debt to cash flow ratios will decide who survives in real estate.

You should be doing all that you can to improve cash flows.


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