30 Sep 08
1 edit
Originally posted by EmLaskerActually you are not alone. In fact, Washington is full of people who have no idea what causes a recession. In fact, I don't think they even know what one is. In that respect, perhaps you are one up on them.
I'm kind of bad at economics, so why did all of sudden do banks close for no reason?!
No matter, however, I am confident that our economic future rests squarely in their hands now.
03 Oct 08
Originally posted by EmLaskerHere is a cool example for you:
I'm kind of bad at economics, so why did all of sudden do banks close for no reason?!
Bar Stool Economics
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one! day, t h e owner threw them a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so: The fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savin! gs).
T he eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant the men began to compare their savings.
'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth man,' but he got $10!'
'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!'
'That's true!!' shouted the seventh man. 'Why should he get $10 back when I got only two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!'
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
03 Oct 08
4 edits
That's not what causes recessions.
From what I understand, one of the main problems is the fact that that lending institutions have been giving out bad home loans. They were letting people borrow more money than the land was actually worth. The only reason why the property was at such a high price was because lending institutions were willing to let people borrow the money. In other words, the property was at an artificially high price because now the land could be sold at the higher price. If no one could afford the property, then the seller would have had to reduce the price to sell it.
Now that people are defaulting on their loans, the bank is having to take possession of land and can't get their money back. The only way they can unload the property for cash is to sell it for much less than what is still owed on the loan.
Simple example:
Loan for 500 000 for a home
Default on loan with 480 000 still owed on the loan. The bank sells the property for 350 000.
The bank has lost 130 000 on the transaction. Do this enough times and you won't have the money to pay back the people who have invested in the bank. Bank goes under.
03 Oct 08
Originally posted by EmLaskerHere's the reason: The Democrats decided that owning a home was an entitlement and forced lenders to not use credit scores or job history when deciding on whether to grant unqualified minority applicants a home mortgage. As you can imagine, the lenders didn't want to do this, but the government coerced them into going along with this plan. It was profitable as long as rising housing prices kept the default rates unusally low. But like all bubbles, it had to burst sometime, and this is the sorry mess we're in today. Unfortunately, the public is being lied to by people like House Speaker Nancy Pelosi about who deserves the blame.
I'm kind of bad at economics, so why did all of sudden do banks close for no reason?!
03 Oct 08
Originally posted by jlillyWhy do Democrats have such a hard-on to pass a bill promoted by President Bush? Also, this thing didn't happen overnight, perhaps it would be wise to study the bills coming from Congress before passing them?
Thankfully Paulson knows exactly what a recession is. His wisdom and lack of greed will solve our problems if only this bill were to pass!
03 Oct 08
Originally posted by der schwarze RitterWow. You actually blame this on the Democrats?!? Fox 'News' is really working wonders.
Here's the reason: The Democrats decided that owning a home was an entitlement and forced lenders to not use credit scores or job history when deciding on whether to grant unqualified minority applicants a home mortgage. As you can imagine, the lenders didn't want to do this, but the government coerced them into going along with this plan. It was ...[text shortened]... blic is being lied to by people like House Speaker Nancy Pelosi about who deserves the blame.
03 Oct 08
1 edit
Originally posted by der schwarze RitterYou keep repeating this outlandish lie. I have refuted it soundly repeatedly as well.
Here's the reason: The Democrats decided that owning a home was an entitlement and forced lenders to not use credit scores or job history when deciding on whether to grant unqualified minority applicants a home mortgage. As you can imagine, the lenders didn't want to do this, but the government coerced them into going along with this plan. It was blic is being lied to by people like House Speaker Nancy Pelosi about who deserves the blame.
Previous post from me in response to NimzoLaursen who argued a similar point as you are arguing:
You're missing the boat. The Fannie Mae / F Mac melt down can not, in an of itself, account for the current financial collapse. It was the credit default swaps that has the subprime mess spread to all corners of the financial industry. Credit default swaps became legal through a measure that Phil Gramm (R) slipped into a Dec. 2000 omnibus bill.
This then exacerbated the subprime phenomenon because it stoked it further. Suuuure, I'll take those securities....here's some more money. Hey, we should sell more of these subprime loans, they're grea and we can off load them to the financial markets like hot cakes! etc
another previous post from me:
The Fannie Mae problem was spread through the far reaches of the economy via credit swaps that only became legal through a measure that Phil Gramm slipped into a 2000 omnibus bill. This allowed the subprime loans to be included in all manner of financial instruments.
Without that, you would only have needed the financia buy out of F Mae & F mac. However, it should be noted that the default credit swaps exacerbated the situation because they fueled the subprime loan market big time.
As usual, the neo-con right would rather summarize the situation in an emotional argument that can be summarized in a phrase, rather than a coherent statement.
This problem is much older than the past 4 years. It was allowed through legislation sponsored by Republicans (Gramm et al) and signed into law by Clinton.
I would respect you a lot more if you actually took a reasoned approach rather than Rush Limbaugh sound bites.
03 Oct 08
Originally posted by Dace AceClassic misdirection....
Here is a cool example for you:
Bar Stool Economics
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would ...[text shortened]... Kamerschen, Ph.D.
Professor of Economics, University of Georgia
Instead of paying the 2 guys to drink you could simply reduce their tax burden to zero and redistribute the savings to the other drinkers in even amounts...or you could invest that bit of the savings into job retraining for those that don't pay so that one day they will get better jobs and be able to pay.
There is no "requirement" to redistribute that money back to the people that paid.