Excuse me for my ignorance, I am not usually not that stupid but economy is something that I never understood well. (I guess I am more empty philosphy oriented type of character).
So, here is a couple of questions :
1. What's up with that crysis ?
2. What is the mechanism of world economics and what causes this kind of situations ? It is still the same planet with same resources.. but everybody is in money panic.
3. How / Why it happens so abrupt. What was the trigger ?
Please explain something about world economics and its crysis situation. I am pretty stupid for that matter.
Thanks in advance.
P. S. Only 50 % of spam allowed, please.
Originally posted by ivan2908http://en.wikipedia.org/wiki/Fractional-reserve_banking
Excuse me for my ignorance, I am not usually not that stupid but economy is something that I never understood well. (I guess I am more empty philosphy oriented type of character).
So, here is a couple of questions :
1. What's up with that crysis ?
2. What is the mechanism of world economics and what causes this kind of situations ? It is still the ...[text shortened]... retty stupid for that matter.
Thanks in advance.
P. S. Only 50 % of spam allowed, please.
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http://en.wikipedia.org/wiki/Subprime_lending
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Financial crisis
Originally posted by ivan29081: Lots of lenders made lots of ill-advised loans to people buying houses with the money who should not have received the loans. The banks took the houses as collateral on the loans. Then the banks sold the loans to stupid investors all around the world. Then the deadbeat home-owners stopped paying their mortgages. Then the stupid banks and investors realized the IOUs they held were worth a lot less than they thought. Then they started selling their houses to get some of their money back. But everyone was selling at the same time so the prices fell and they got less than expected. In this way, billions and billions of dollars evaporated.
Excuse me for my ignorance, I am not usually not that stupid but economy is something that I never understood well. (I guess I am more empty philosphy oriented type of character).
So, here is a couple of questions :
1. What's up with that crysis ?
2. What is the mechanism of world economics and what causes this kind of situations ? It is still the ...[text shortened]... retty stupid for that matter.
Thanks in advance.
P. S. Only 50 % of spam allowed, please.
With all of these loses, banks became less and less solvent (able to pay their debts). Bear Stearns was the first to explode here in the States but other soon fell into difficulty. Northern Rock collapsed in GB earlier this year. Then Lehman Bros. Then WaMu and Wachovia. Meanwhile, banks that were not insolvent still had to write off billions in losses. Now government authorities are trying to put public money into the banks to shore them up.
#2 Greed gets us into these bubbles and fear bursts them. Too much money makes it easy to be greedy (borrowers and lenders) so central bankers who control the supply of money are to blame as well. And special mention must go to Fannie Mae and Freddi Mac, quasi-government/private companies that bought lots and lots of crappy mortgages that, in their absence, would not have been made in the first place. And Fannie and Freddie were defended by certain members of Congress so they are too blame as well.
The trigger? A decline in the value of houses in the USA triggered a decline in the value of the collateral for all of the mortgages written against the houses. This bled the balance sheets of the banks that held the mortgages which forced them to sell the mortgages in a panic to raise cash which eroded the value of everyone else's portfolio of mortgages and the panic was on.
Then the banks looked around and were not sure which of their fellows were healthy and which were infected with portfolios of bad mortgages. Not sure which ones were healthy they elected to stop lending to ALL banks until things were sorted out and suddenly most inter-bank lending froze. This is the credit crisis you have read so much about.
noted an interesting item in an old home remodeling magazine, from a year or so ago ... prices of lumber, drywall, etc. had been dropping drastically prior to publication ... so it's not like people shouldn't have seen it coming.
don't listen to someone who's trying to sell you houses ... they'll always have reasons why you should buy ...
I think the main problem is that we've got a major issue with over-borrowing.
Individuals maxing out all their credit cards and then using equity on their home to borrow still more --- and a never-ending supply of banks willing to make loans to these people. And then you have governments at the local, state, & national level also borrowing money instead of making tough decisions to either cut spending or raise taxes --- and a never-ending supply of lenders (mainly in China) willing to make loans to these governments
And as long as the economy keeps growing, everyone is able to make just enough additional money to keep current on all their payments and the lenders are able to keep lending -- allowing everyone to walk off the cliff like Wile E. Coyote and not fall down.....until something causes the economy to stop growing....
But, unlike Wile E. Coyote, after we have fallen apart into a million bankrupt pieces, we don't get to just move on to the next scene.
I believe that credit cards and loans should be minimized as much as possible (individuals, businesses, governments) - we need to get back to saving up before spending. The problem with borrowing is that over the long term, you end up spending a large % of your money on "money" instead of on the things you want.