Would anyone explain the current financial crisis in plain English without jargons? It is said to be the worst in the past 70 years. And the rescue plan by the US government has been rejected by the US congress. What does it mean for the stock market? These days we are just bombarded with reports on the Wall Street crisis.
Would anyone explain the current financial crisis in plain E
Try a financial forum -- I doubt anyone around here can speak with expertise.
You can start here: http://finance.google.com/finance?catid=63765713
You can start here: http://finance.google.com/finance?catid=63765713
I knew someone intimately who worked directly in the mortgage industry. Here's what happened:
The Federal Government deregulated the mortgage industry. Suddenly, almost anybody could set up a company and start loaning. (Of course, they had to find investors to finance them.) Since the property values continued to rise, mortgage lenders were pushing through all kinds of shady loans, to people who couldn't afford them, in order to get their commissions and bonuses. (Whether or not these people could actually afford these loans was not an issue.) People bought loans that were $X for the first 2 years, then went up to $10X; they were told that they could always refinance at that time. After all, the values were still supposed to go up, weren't they?
This continued rise in value did not materialize; there came a time when the real estate market began to level off. (Supply and demand.) Many Americans were stuck with mortgages that were for more money than the value of their homes. (They call this situation "upside down".)Suddenly, people who had these shady loans could not refinance, and began to default on their loans. The defaults ran into the millions; mortgage companies, banks, etc., then began to default themselves. This created a ripple effect.
Do you want to hear more, or is this enough?
The Federal Government deregulated the mortgage industry. Suddenly, almost anybody could set up a company and start loaning. (Of course, they had to find investors to finance them.) Since the property values continued to rise, mortgage lenders were pushing through all kinds of shady loans, to people who couldn't afford them, in order to get their commissions and bonuses. (Whether or not these people could actually afford these loans was not an issue.) People bought loans that were $X for the first 2 years, then went up to $10X; they were told that they could always refinance at that time. After all, the values were still supposed to go up, weren't they?
This continued rise in value did not materialize; there came a time when the real estate market began to level off. (Supply and demand.) Many Americans were stuck with mortgages that were for more money than the value of their homes. (They call this situation "upside down".)Suddenly, people who had these shady loans could not refinance, and began to default on their loans. The defaults ran into the millions; mortgage companies, banks, etc., then began to default themselves. This created a ripple effect.
Do you want to hear more, or is this enough?
It's a lovely day tomorrow.....
Tomorrow is a lovely day....
Come and feast your tear dimmed eyes
On tomorrow's clear blue skies.
If today your heart is weary
If every little thing looks grey....
Just forget your troubles
And learn to say -
Tomorrow is a lovely day.
http://www.youtube.com/watch?v=R_8FOt6unvc
NB: I have absolutely no affiliation or connection with Stoke City FC whatsoever......in fact I know nothing at all about them as they are an English team.....it's pure coincidence that this YT vid featured them using a very old song which can only be described as one promoting optimism for brighter and happier economic times to come.....every spell of fine weather always has the odd rainy day clouding the scene now and again.
Tomorrow is a lovely day....
Come and feast your tear dimmed eyes
On tomorrow's clear blue skies.
If today your heart is weary
If every little thing looks grey....
Just forget your troubles
And learn to say -
Tomorrow is a lovely day.
http://www.youtube.com/watch?v=R_8FOt6unvc
NB: I have absolutely no affiliation or connection with Stoke City FC whatsoever......in fact I know nothing at all about them as they are an English team.....it's pure coincidence that this YT vid featured them using a very old song which can only be described as one promoting optimism for brighter and happier economic times to come.....every spell of fine weather always has the odd rainy day clouding the scene now and again.
Plain English:
We're screwed.
It's gonna cost a lotta cash to fix this one.
Money we don't actually have.
Bankers may find themselves being shot on sight.
Start stocking up on canned food.
We're screwed.
It's gonna cost a lotta cash to fix this one.
Money we don't actually have.
Bankers may find themselves being shot on sight.
Start stocking up on canned food.
It's not because the mortgage industry was deregulated. Deregulation is almost always a good thing but always manages to be a convenient scapegoat...
Several things happened causing a financial 'perfect storm.' The asset price bubble burst coupled with 9/11 caused monetary policy makers to lower interest rates and keep them low for too long (which also contributed to the weak dollar). The low rates stimulated competition in the home loan industry so mortgage brokers (financiers, banks, etc.) increased lending (which they were able to do thanks to policy decisions and laws during the Clinton administration which, at first glance, was supposed to help minorities afford to buy rather than simply rent). The government-backed Fannie and Freddie enterprises were guaranteed by the government so they continued to expand.
So what happened was a lax monetary policy, pressure to expand home loan volume, and the failure to monitor home lending quality occurred simultaneously. It was poor regulation and too much of it.
Several things happened causing a financial 'perfect storm.' The asset price bubble burst coupled with 9/11 caused monetary policy makers to lower interest rates and keep them low for too long (which also contributed to the weak dollar). The low rates stimulated competition in the home loan industry so mortgage brokers (financiers, banks, etc.) increased lending (which they were able to do thanks to policy decisions and laws during the Clinton administration which, at first glance, was supposed to help minorities afford to buy rather than simply rent). The government-backed Fannie and Freddie enterprises were guaranteed by the government so they continued to expand.
So what happened was a lax monetary policy, pressure to expand home loan volume, and the failure to monitor home lending quality occurred simultaneously. It was poor regulation and too much of it.
Banks chucking dosh at people like it was confetti at a mss wedding and financiers/city traders etc paying themselves gobsmackingly mega enormous bonuses - and people living well beyond their means.
Driving force in a word: Greed
Result in a word: Karma
Driving force in a word: Greed
Result in a word: Karma
In the old days (1950's), in NY state, you needed 25% down to buy a house, and mortgages were fixed rate. Of course, Glass-Stegall was in full effect then.
If we were still operating under those rules, I don't think we'd be seeing nearly as many defaults. (For my last mortage I put up about 80% down payment.)
If we were still operating under those rules, I don't think we'd be seeing nearly as many defaults. (For my last mortage I put up about 80% down payment.)
[It's not because the mortgage industry was deregulated. Deregulation is almost always a good thing but always manages to be a convenient scapegoat... ]
Skippy, I was THERE. Let me tell you about some of the shady loans available. For some start-up mortgage companies, proof-of-income wasn't even required. "Stated" income was the criteria used; you could make up any old figure as long as your credit was good. They got away with this by having borrowers sign fraud clauses. Another trick was called the "negative amortization" loan; this loan involved making very, very low payments for the first 3-5 years, the difference added on to your principal at the end. Mortgage brokers gave these loans to anybody and everybody, because they got their commissions and bonuses right then. We were told,"You can always refinance; your home value has no way to go but up." I know all this from first-hand experience, Skippy.
I agree with you that the whole thing got started in 1999, when Clinton signed the Republican-backed bill deregulating the whole industry. The woes at Freddie Mac and Fannie Mae had a tremendous impact, but all other mortgage companies were giving out these shady loans; blaming just Freddie Mac and Fannie Mae is giving these other companies a free pass.
It must be remembered that deregulation is normally a Republican ideal; oftentimes, Democrats buy into the dogma, and this is where we get into trouble. (The Democrats are normally the regulators.)
As for the wisdom of deregulation, I must vehemently disagree with you, Skippy. I have never been a fan of deregulation, because it doesn't protect the public from the bad guys. Bad loans are pushed through, melanin is put into baby's milk for profit, and airplanes aren't checked for safety, endangering passengers for the sake of a dollar. It happens, and a person who denies this is in denial himself. Freddie Mac and Fannie Mae got into trouble because the few regulations that were left were not enforced.
We may have to have a gentleman's agreement to disagree on this issue, Skippy, but I beg you not to distort the facts to fit some kind of political agenda.
Skippy, I was THERE. Let me tell you about some of the shady loans available. For some start-up mortgage companies, proof-of-income wasn't even required. "Stated" income was the criteria used; you could make up any old figure as long as your credit was good. They got away with this by having borrowers sign fraud clauses. Another trick was called the "negative amortization" loan; this loan involved making very, very low payments for the first 3-5 years, the difference added on to your principal at the end. Mortgage brokers gave these loans to anybody and everybody, because they got their commissions and bonuses right then. We were told,"You can always refinance; your home value has no way to go but up." I know all this from first-hand experience, Skippy.
I agree with you that the whole thing got started in 1999, when Clinton signed the Republican-backed bill deregulating the whole industry. The woes at Freddie Mac and Fannie Mae had a tremendous impact, but all other mortgage companies were giving out these shady loans; blaming just Freddie Mac and Fannie Mae is giving these other companies a free pass.
It must be remembered that deregulation is normally a Republican ideal; oftentimes, Democrats buy into the dogma, and this is where we get into trouble. (The Democrats are normally the regulators.)
As for the wisdom of deregulation, I must vehemently disagree with you, Skippy. I have never been a fan of deregulation, because it doesn't protect the public from the bad guys. Bad loans are pushed through, melanin is put into baby's milk for profit, and airplanes aren't checked for safety, endangering passengers for the sake of a dollar. It happens, and a person who denies this is in denial himself. Freddie Mac and Fannie Mae got into trouble because the few regulations that were left were not enforced.
We may have to have a gentleman's agreement to disagree on this issue, Skippy, but I beg you not to distort the facts to fit some kind of political agenda.
Skippy, do you realize that in your post you completely contradicted yourself?