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Please Explain The Financial Crisis To A Retard
Posted by psychosolodiver • 11/06/08 • Subscribe to this Discussion [RSS] • Report This Topic
Topics: financial crisis
I am retarded, so please help me and explain this.
We are in "A financial crisis." Supposedly.
The Federal Reserve (which is not federal, and nothing about it is a reserve) has just basically printed 700 billion more dollars to give to the banks, so they can loan out to the masses, so they can go into more debt and spend more dollars at Walmart and send the profits to China.
Doesn't sound like a good idea to me, but if you spend a dollar, it goes somewhere.
If I buy a beer for two dollars, the cashier or bar tender takes it... it GOES SOMEWHERE.
I know we are no longer on the Gold standard, and our money is just "fiat" (i.e. money that is money because we say it is), but where did all this money that we are missing go?
So, I guess that is my question. Where did all the money go?
Plumber Joe doesn't pay his mortgage and buys beer, so the liquor store has his money and not the bank.
Maybe he didn't have a job after a while and couldn't pay. But, who has the money he would have had if he had a job?
So, if the money still exists, it's probably in the hands of those who lent it somewhere down the line.
If that's the case, why do the taxpayers have to be put on the hook to make the rich richer?
And if we didn't give any more money to the banks, people wouldn't go deeper into debt. Sounds good to me.
Am I retarded?
User Comments
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money go bye, bye. -
You sound selfish. The people at Goldman and Sachs have to eat too, you know.-
Jack,
This has to be bonanza times for you. In just the last week, I've heard of two separate "opportunities" that just screamed scam to me. Bad economies bring out the predators as usual.
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provided 450000 dollar loans to kids from taco bell and they were unable to pay for it after there mor. went up ..
investmentadvice101.blogspot.com/ -
Not retarded. You just missed the very point of your own listing.
The money never existed. It was speculatory. The value of homes rose, Making the speculated assets out there larger. People loaning money to buy houses that were inflated in value. Owing money that never existed. Mortgaged with an inflated property value as security.
Then We have the mess Clinton created with his ideas that every american should own their own home. Forcing Freddie Mac and Fannie Mae to devote a certain percentage of their assets to Subprime mortgages. Qualifying people that normally wouldn't qualify for a homeloan. Causing the housing market to skyrocket. In essence they forced the banks to trade in a market that they didn't want to be in. ACORN was a big part in forcing banks through lawsuits etc to issue subprime mortgages.
Then the bubble burst. This happened through several combining factors.
When oil prices rose for instance. Just a little bit of peoples actual money moved from their ability to pay their mortgage to those 700 billion a year that some other countries get. There were too many people who were living right on the edge. One hickup in the economy caused a disproportionate amount of people to default on their loans.
All of a sudden, there was a surplus of houses for sale. And as with any surplus of a commodity, prices drop. Now we get into a dangerous position.
Banks make money by lending money against a security. In any case. They either get the money back plus interest. Or they take the house. (foreclosure). This works well as long as there isn't a surplus of houses. Since the bank can sell a foreclosed property quickly and get their money back. But when the lender defaults, and the bank is stuck with a property they can't sell. Not only did they lose the projected profit from the inflated house value. They in fact bought an asset for more than it was worth.
Now they have to Buy expensive and sell cheap. (Not a good way to make money.) Added to the mess, as long as the bank sits on the property, they are responsible for the property taxes on it. In essence they are bleeding money. Money that they need to lend to people that CAN afford to pay the mortgages so that they can make money.
Kadmiel was in essence right on this. The problem stems from fiscal "equal rights" legislation. Forcing banks to pick up mortgages that are really bad business deals because the lender isn't solid. These loans are below the best also known as *Sub-prime*
The bailout, (although I'm against it because it doesn't address the problem.) Is intended to replace the losses that banks are taking so that they have available funds to lend to people, in essence. they are "restocking the shelves" for banks to have something to sell.
Although it is frustrating and completely asinine for a bank to take this money and spend 400k on spa's. That "Greed" is not the problem here really. The problem lays with the american mentality of keeping up with the Joneses. Which has been skewed into some people having a sense of entitlement, thinking that they too should have loans for propoerties. Regardless of how crappy their economy is.
The final problem here is a fear policy. When the govt thinks some banks and companies are "too big to fail" And thereby added a bandaid by giving them money to bail them out instead of letting the market show what happens to bad business. As opposed to the "everyone can be successful" thinking that is so prevalent in this country now. In the real world, the ability to fail is what creates the ability to succeed.
In essence, this mess was created when government decided that they should dictate to banks so that they would move from good business decisions. (only approving those that can afford to pay) To bad business, (approving those that are really too risky for it)
Some things are not Inalienable rights. Owning property is one of those things.-
Another way of looking at the bailout is that the banks were "Rewarded" for their foreclosures, freeing them up to make more foreclosures.
The banks WERE being patient with people who were late on payments but still paying something. -
Wrong spot
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Why don't you ask Fannie / Freddie how much longer they could have been "patient".
When a few are late. Being patient is not that bad. When that number climbs.. You end up Like Lehman Bros and Co.
You want another way to look at it. The government owed the banks this money for forcing them to make crappy business decisions based on some lofty ideal of home ownership for everyone.-
Erm, no. The government did not force business to make "crappy business decisions". The businesses did that all on their own.
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You're all wrong. The real enemy is capitalism. Capitalist greed just got what it deserved. We can fix the financial crisis by giving the government more power, more control over the economy and a better life for all. It's not like it was the government who started the credit-driven boom. No, that was just capitalists exploiting the poor.-
And the fact that "capitalists" were forced to give these loans to the poor by the government is just a funny little coinkidinki to you then?
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Maybe I should add that I was being sarcastic...
A centrally controlled economy is about the worst kind of evil I can imagine. I think only Oprah Winfrey is more evil. -
Maybe I should add that I was being sarcastic.. ...Pheewww!!!
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The reason that the credit market is so important isn't Bob and Sally Smith putting groceries on the credit card until payday. It's Bob's plumbing business buying enough supplies with a loan to finish the 60-unit apartment complex he's contracted to help build. When he's done, he gets paid, he pays the bank, and everybody's happy.
But if the bank has no money, what outfit has enough toilets, sinks, pipe, and connections on hand - along with the trained staff to install them - for any large project. The business world runs on credit. If the little guy can't borrow to pay the wholesaler, then the wholesaler doesn't sell much, doesn't buy much (or can't borrow enough to replenish stock), and the manufacturers don't sell. You can see where that goes, right?
The housing bubble was a huge cause, but the effect isn't just that half of the US is upside-down on their mortgages. It's that businesses can't make deals because the money (real or digital) has stalled. That's the problem that had to be addressed immediately. -
A person who can't pay gets another person who can't pay to guarantee that he can pay. Like a person with two wooden legs getting another person with two wooden legs to guarantee that he has got two natural legs. It don't make either of them able to do a walking-match. -- Charles Dickens -
Dickens also wrote these words of caution ::
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery. -- David Copperfield, 1850 -
Looks like the next shoe to drop will be another sub-prime category: Credit cards. When the spillover from all these foreclosures takes full (strangle) hold on our economy, just think of all the 18%-35% sub-prime credit card holders who are going to go belly-up, thrown into personal bankruptcy.
Horrible thoght. But, it fits in with the logical sequence of financial collapse. I wonder what all these people--like my unemployed nephew who has spent up a storm with no income-- are going to do. I wonder which big credit card lender is going to go belly-up first (or yell for a Government bailout). -
Retards are actually more clever than you think-
That's why they go into politics.
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I have written a post about in my blog. "GLOBAL FINANCIAL MELTDOWN"
If you wanna check out Google it this way "why there is financial crisis" and u'll see dosox journal flying high. -
I did a series of articles on this. Here is a good start with links to the others....
dougist.com/index.php?p=36
The short answer is that Yes, the government created mandates and "incentives" for the extension of lending to certain groups who were not credit worthy. To deal with the anomalous risk they were taking on the industry built a bunch of instruments that didn't work.
It's as if the banks were told to fly to the moon with a Goddard rocket before they were able to develop the Saturn V.
When the rocket crashed banks ran for cover and stopped lending. No lending means no business Now the crash has has seeped into consumers expectations about the future, so they have stopped buying... well... everything.
As of last week the banks still aren't lending, deals are not getting done, inventory is not being purchased, and people who make the inventory are being fired. (Oh, by the way, pretty much everyone makes inventory of one kind or another)
There are lot more moving parts but that's about the gist of it. To blame the markets or capitalism as the only problem, or to blame the government and policy as the only problem is naive.
Right now the game is all about confidence, and that is at an all time low (maybe that changed on Tuesday, but so far it hasn't show up in the numbers.)
Jack: You'll appreciate this, being an old time watcher of the economy. Remember the old theory of the"Paradox of Thrift"? That's exactly where we are right now. Everyone is saving us into a (dep)recession. -
1 dollar plus 2 dollars can borrow 300 dollars.
it's called leverage in some circles.
i call it special needs math. -
disregard the folks who insist that bill clinton and fannie mae/freddie mac are responsible for the crisis. these people know nothing and are merely using the crisis to advance their political agenda.
www.nytimes.com/2008/07/14/opinion/14krugman.html?hp
www.mcclatchydc.com/homepage/story/53802.html-
You have to be careful with that Krugman article because it was refuted quite early after it's publication. This is not his field and he got the accounting wrong.
Fannie and Freddie did in fact take on billions in sub-prime debt due to Congressional incentive/mandate. A quick google of the article will give you the list of economists closer to the issue who pointed out how Krugman got tripped up on some very tricky accounting.
But that doesn't absolve the private sector from not coming up with instruments that should have handled or priced the mandated risk appropriately. Clearly risk management failed on many levels. -
but the mcclatchy piece has NOT been refuted. the fannie/freddie drumbeat that cons are beating is just their inability to admit that deregulation has been a bust. and yes, plenty of democrats voted for the financial services modernization act and they deserve blame too.
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Here's the Financial Crisis in a Three minute video:
www.washingtonpost.com/wp-dyn/content/gallery/2008/10/15/GA2008101502860.ht...
And here:
consumerist.com/5068509/understand-the-financial-crisis-in-3-minutes -
Doug, you explained the banks' role nicely. Not much to add, but a lot of people do not understand that the Government's role was NOT to FORCE banks to make all these screwy, risky loans, but to give them INCENTIVE to do it. Right now, some of the best asset-ratio banks in the country are the small community banks who held, stubbornly to such old fashioned rules as 20% down, and no more than 25% of income for payments, while steering clear of ARMs.
It was the big boys, like B of A, starting out with their new policy a year or so ago of giving out Visa Cards to illegal aliens, then taking over Country Wide and Merrill Lynch, with all their baggage, that screwed banking up good (in general, that is). Had everyone stuck to the conservative lending principles of the small community banks, this whole lending crisis could have been avoided. -
Egad, if the politicians bail out the credit card companies, they all deserve to HANG! Those usurious bastards have been screwing their customers for years and I SO pray they get their commeupance. (I have accounts with a credit union and a small customer focused community bank. The big ones ALL suck really, Really bad.
And as for the original question, the money that's "gone missing" was never really there to begin with. Paper gains are just that paper gains until they are liquidated. And the real value of ANY asset is precisely what a willing buyer will pay in cash Today. -
No need to explain it. Financial crisis is there. Not only in one country. It is all over the world and now it is a universal thruth.
www.investmentsandmoney.com/ -
Simply put, the federal reserve lends the money to the banks, and charges interest.
The banks can then print and lend up to this amonut as long as they keep 10% in reserve, where it gets fun is
The banks send out 90% of the money in loans.
Say 80% of that gets re-invested with the bank, they can then loan out AGAIN 90% of that 80%
And of that 90% of 80% that is loaned out say 80% of that is re-invested with the bank, so 90% of the 80% of the 90% can be lent out again, and so on and so forth.
The funny thing is the governemnt releases so much money to the banks each year, and charges interest on this money, so ask yourself if the bank only lets $10 be printed and wants $12 back after 6 months how do you pay back the $2 which technically should not haev been printed.
The current economy is a false economy, bitch aint it? -
Personally, I think the Department of the Treasury should print more money and mail each of us one million dollars to boost the economy. I'll take mine in tens, twenties, and hundreds...thank you.-
Heard of inflation?
It's what happens when the paper your money is printed on is fiat currency and its value is not related to something of actual value, like gold in the reserve. The more money you print, the easier it is to get hold of money, the less your money is worth.
Coincidentally, president Robert Mugabe of Zimbabwe did exactly that - he printed more money when he destabilised his country to try and bring more money into circulation. Zimbabwe currently has the highest inflation in the world (2 and a bit million percent and counting).
Coincidentally, credit-driven booms are a result of more or less the same thing, except that the governments didn't print more money. They just facilitated easy credit.
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what's "priceless" now??
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