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finance,financial,economics,subprime,mortgage,credit crisis,bankrupt,banks Great Explanation of the Credit CrisisGreat Explanation of the Credit Crisistags:For those (like myself) that need a simplified version of how things in the financial world came to be, here's a great video by designer Jonathan Jarvis that I came across on NPR's planet money site. (11min)
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LOL @ 7:26 graphic!!!!
somebody * promote this....and add it to the *economy channel.
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*news
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Sure, there were politicians who were pushing for more lending to low income families, but that wouldn't have mattered a bit if the brokers and lenders weren't cashing in on those loans.
Favorite quote: "box full of worthless houses"
And ACORN.
The mortgage/credit problem is bad, to be sure. But it's just the trigger for the larger problem. It exposed the Ponzi scheme that is the unregulated CDS market which is where tens of trillions of dollars are in play (and potentially gone). That's the shit that has people scared.
really depressing subject.
didn't really cover credit-default-swaps though. which is the so-called insurance for the "safe" tier. There was another video on the sift explaining that, but I'm too lazy to search for it right now.
the real problem is 1 word - greed.
it's great that people or families with bad credit can still buy a house, but for god sakes, buy something reasonable. ask yourself "is it worth this much?" I mean if it's a 2-bedroom house in a shithole LA suburb, is it really worth $500k+ ?? Or, if you have a small family, do you really need 3000+ sq ft of living space? Why invest in something so expensive?
and the "flippers" made the problem worse, along with all the stupid reality shows that are about flipping a house. Each show only had stories about people who succeeded. It's easy to fill 1 hour with 3 success stories, but what about the 13 failures that you aren't covering? Who sponsored that shit? Investment bankers?
new rule: only buy a house if you are actually gonna live in it.
The only problem I see is that the 'government' is trying to bail out anyone involved in this process. If someone defaults, just let them go. Execute the default clauses of the contracts, and continue on. If it happens so much that a bank, or a broker go bankrupt, then SO BE IT. LET THEM DIE. That is the ONLY SOLUTION. If someone is a bad at business, THEY OUGHT NOT TO BE INVOLVED IN BUSINESS. If this means an entire financial system goes under, then GOOD. LET IT GO. Replace it with something sound and sustainable. The worst possible thing would be to attempt to save those irresponsible people from the consequences of their actions.
Which, it just so happens, is exactly what the 'U.S. government' is doing.
Old rule, revived: Earn money before you spend it, and always save a portion.
First of all, this 'crisis' doesn't affect EVERYONE. That's just not true. It only affect those who get a mortgage on their home. I know lots of people who avoid mortgages at all costs for JUST THIS REASON.
Hmm, they did seem to miss a step in explaining this whole thing. It's not just people who have mortgages who're affected.
It's also people who own stock, or need to take out a loan to cover a business expansion.
It's also people who work for a company that sells things, since all the people out there who're seeing their mortgage equity and stocks collapse in value stop buying things.
That company cuts costs, and lays a bunch of workers off. Those unemployed now stop buying things too, reinforcing the cycle.
This affects everyone.
When the government spends trillions bailing people out, it takes a problem affecting some percentage of irresponsible people and some smaller percentage of innocent bystanders--and forces it to affect all 300 million people living in America.
For example. I do not own a house, I have no risky investments, and moderate fluctuations in the price of goods does not affect me in any way. How could this crisis financially affect me unless the government directly increases my taxes or inflates the money I already own?
I don't think you have the evidence to claim that either way it affects everybody, especially when I am using myself as a counter-example...
Inflation and taxes, however, do affect everybody.
As an example, I work in television. Networks sell ad time. They in turn pay production companies to make shows. One such production company pays me to work for them. So that looks like this:
Company wishing to advertise --$--> Network --$--> Production Company --$--> Me
Now, television is somewhat "recession proof" because the populous having less money frequently means they stay home more and watch more television. Companies, depending on the circumstances, may pump more money into advertising to get people to buy their products. However, when the economy gets very bad, less companies have available capital to spend in advertising. Also, consumers reach a point where they don't have enough money to buy products at all, so advertising to them would be useless. This tanks the demand for ad time, which lowers the price, which lowers the amount of money available for show production, which lowers the amount of money my company has to pay employess, which lowers the likelihood that I will still have a job there tomorrow.
Again by way of example, the auto industry bailout got me pretty angry, but the point was that if you put that many people out of work, they don't have income to spend on things that keep the economy moving, which eventually reaches many corners of business.
Or, as a more apropos example, people who get in over their heads with mortgages they cannot afford no longer have money to buy stuff. So the part I left out of the equation was this:
Consumer --$--> Business --$--> Network --$--> Production house --$--> Me
Ostensibly the bailout money goes to other people and comes out of your taxes, but your job may ultimately be being saved. Many people see it that way, but we are just too removed from the front lines to feel affected by it. But I assure you that given time without some sort of action, the effects would be felt much farther away from the people who look to be the ones "benefiting" from the bailout.
My job competes in a global market, and if anything the bailouts will MAKE me lose my job because other countries are bailing out companies in my sector, but my company is in a sector of the US that will almost certainly not receive a bailout. The only thing keeping my company in business is the fact that we are losing less money than everyone else worldwide. Every company in my sector has posted a loss for 6 straight quarters. In the free market my company, being the most efficient, would last the recession and gain a greater market share when others go under. Now, under socialism, companies in the global market are getting bailed out where my company is not, which gives them an artificial advantage to weather the recession.
So...thanks to the global bailout precedence set by the US, companies such as mine could go bankrupt. My company is not the only example of this, but now you have a personal face on what is wrong with this.
By the way, my company is the last US manufacturer in this sector...
Unmentioned at the "Turning Point" in the video.
"Fannie Mae and Freddie Mac started buying sub prime loans. Previously there was a much smaller market for sub prime mortgages, but with Fannie and Freddie buying the paper the availability of sub prime loans skyrocketed. With time-tested lending practices out the window, these two institutions ended up controlling 90% of the secondary market for mortgages. Those within the organizations who raised objections to the irresponsible lending being encouraged by Fannie and Freddie were overruled and eased out.
"Fannie and Freddy began hiring Democratic operatives as CEO’s and upper management. At the same time, Fannie and Freddie began making huge contributors to Congress, spending millions to influence votes. While some Republicans also received financial contributions from the two institutions, most of the money went to Democrats. Top recipients of those campaign contributions were Barney Frank and Chris Dodd, the Chairmen of the Committees that should have been providing over site of the two financial giants. Barack Obama and Hillary Clinton were also among the top receipts of Fannie and Freddy campaign contributions.
"Wall Street investors liked the new arrangement and the easy money. Democrats liked the votes they could garner by being the party that advanced homeownership and they liked the dependable source of campaign contributions. This was the “crony capitalism” that led to the crisis."
The "Community Reinvestment Act" was another Jimmeh Carter abortion, strengthened in the 1990s by Clinton. Poor people deserve to live in the same houses as their more well-off neighbors. It's only fair.
ACORN and the Clinton "Justice" Department did threaten banks to keep making bad loans. In a 1992 New York Times article, ACORN’s longtime housing leader, Michael Shea, admitted that banks would not have adopted ultimately harmful policies “if there was no community pressure and the law,” but that those factors made “a lot of bankers see it’s in their self-interest.”
The irony is that liberals claim to hate greed, yet their one-size-fits-all socialism created artificial market conditions that encouraged greed.
^Look at it this way NetRunner, if the government does nothing it only affects some small number of people (those with mortgages, those making high risk investments, and some small percentage of innocent bystanders)
When the government spends trillions bailing people out, it takes a problem affecting some percentage of irresponsible people and some smaller percentage of innocent bystanders--and forces it to affect all 300 million people living in America.
For example. I do not own a house, I have no risky investments, and moderate fluctuations in the price of goods does not affect me in any way. How could this crisis financially affect me unless the government directly increases my taxes or inflates the money I already own?
I don't think you have the evidence to claim that either way it affects everybody, especially when I am using myself as a counter-example...
Inflation and taxes, however, do affect everybody.
What about the products/services your company sells? If you're business-to-business then other companies who numbers are poor are going to affect you. Presumably the same if not worse with selling to consumers if they lose their jobs.
Do you have a pension? How safe is that? I'm self-employed and haven't embedded myself too deeply into the financial system to be affected currently but I'm worried about how this will play out. I work in education in England but I worry about the government's commitment to maintaining their recent levels of funding.