US Financial Crisis

[morningstar]

What is going on over there?

[Bob]

From what I understand, years ago the government kind of forced banks to lend money more easily so more people could buy houses.  Home owners are good for the government.  The housing market stopped being good.  The interest rates or something changed with those loans -- People got loans with variable interest rates.  (Duh)  Rates changed and people couldn't pay.  Bank foreclosed on their houses.  Banks get stuck with a house they don't want.  Foreclosed houses make the neighborhood property values go down. 

And then all those messed up loans made their way back up to the banks and investment businesses.  Easy loans turned out bad when people couldn't pay them off.  I think the government bailed out (gave money) to one of the businesses.  Freddie Mac or Sally Mae.  Money lenders.  Then the businesses that were affected got bigger -- Whatever those big businesses were, AIG and something else.  People who invested in those companies lost the value of their stock. 

Then there was a plan for the government to invest/bail out those businesses.  I think that was giving $700 billion to AIG.  The idea being things would be bad for the U.S. if a business that big went bankrupt.  Yesterday, congress (?) didn't pass that bill (Was it a bill?).  The stock market plunged the most if ever has in one day.  I heard people saying if the government bought out the businesses, they were just being a safety net -- as opposed to letting the market decide and bad investments mean you lose.  And that the government would own those businesses which would be a conflict of interest -- Should the government own a major portion of the businesses in its country?  Is that democracy?  But then I heard that the government would make it a loan and would get paid back in the long run, with interest.

That's my understanding of it.  Layperson understanding.

And then if a politician, the President, were to say things are in bad shape, that could make things worse.  If everyone panics and starts hording their money, things can freeze up.  Like Miracle on 34th Street.  So some thought officials should say things are in ok shape so investors don't lose confidence.  If it's an outside country and the U.S. President says it's not good here, that country might invest with China instead.  That's not going to help things here and it's just based on people's beliefs. 

I see.  The House of Representatives voted this bailout plan down.  I heard they have elections coming up and that influenced it. 

Either way, it affects everything.  If the government bails them out, everyone pays now with taxes.  If these businesses go down, then there's less money in the system -- Banks won't give people loans... People can't buy a house.. etc, etc, etc. 

[morningstar]

Lovely. I knew bits if it but just didn't have the whole picture. And then a few of our banks go with it cos they invested too much in the US then we bail them out...and so it continues.

[Bob]

I heard someone in the media worried that investors would go to China or India instead. 

And I heard today that many big businesses borrow money to pay their workers.  I don't understand that, but that's what they said.  No loans, no paychecks for people.

I thought they had things figured out enough so things like this didn't happen.  Apparently not, or they were gambling, hoping nothing would go wrong and things could turn out much better than without taking the risk.

There are places you can see cuts.  Things closing due to budget cuts.  I wonder about the things that you never have awareness of.  Things that would have been but aren't because of things like this.

[Bob]

Morningstar is correct.  But come on.  These other countries have to start leading themselves.  The US dips their stockmarket and what happens?  Everyone else has to follow along.  Why can't they dip their stockmarkets on their own?  Why do they have to do whatever the US does?  If the US jumped off a cliff would the other countries jump too?  I guess it's a sincere form of flattery. 

[morningstar]

Morningstar is correct.  But come on.  These other countries have to start leading themselves.  The US dips their stockmarket and what happens?  Everyone else has to follow along.  Why can't they dip their stockmarkets on their own?  Why do they have to do whatever the US does?  If the US jumped off a cliff would the other countries jump too?  I guess it's a sincere form of flattery. 

Or a sure sign of global economic instability. Apparently Europe's being hit fairly hard but we're fine here as far as I can tell.

[rc]

I think it has more to do with the size of the US market - when things go awry there, other markets see a big-spending customer in trouble.  When the US is in economic trouble, people in Canada begin to wonder where they'll export all those natural resources

So the news is that they're still pushing for the $700 billion bailout.  They must know something I don't.  Very likely since I don't know much.  But some basic math puts that at ~$2400 per person, to bail out what... banks that loaned people too much money to buy houses they couldn't afford?

I get choked when I have to bail a friend out of a $100 bar tab.

Could you still call it a free market when the government is forcing banks to lend money and then bailing them out?

[Bob]

The illegal immigrants are now heading to Guatamala, the new land of opportunity.

[kelly_kelly]

What people don't understand is that Wall Street failing has consequences for the whole country. This isn't a "Wall Street bailout" that helps CEO's and tycoons. It's a Main Street bailout without which everyone will suffer.

[Bob]

Either way, everyone still pays.

[morningstar]

Either way, everyone still pays.

That they do.

[term]

Here's a 3 1/2 hour history lesson on the banking system in the US and Europe you might find interesting:

https://video.google.com/videoplay?docid=-515319560256183936&ei=P6P3SNeeE4Kg2gL4kaj3Dg&q=money+makers

Edit: from the webiste of the film, i got this document on the bailout:
link

[ahinton]

What people don't understand is that Wall Street failing has consequences for the whole country. This isn't a "Wall Street bailout" that helps CEO's and tycoons. It's a Main Street bailout without which everyone will suffer.

And with which they won't? Any such bail-out, whatever one's view of its moralities or otherwise, is inevitably dependent for its success upon its continuous funding by the taxpayer; in times of deepening economic recession, unemployment rises, businesses scale down and/or go to the wall and, as a consequence, governments pull in increasing less tax revenue and pays out more in state benefits (the latter varying from country to country, of course), so there are no guarantees that 500 billion dollar purchases of sticking plaster will have anything more than a very short term effect. Effectively, state control of banks means that taxpayers become shareholders in them; how many people want bank shares these days, especuially those that they are forced to purchase and from which they are unlikely ever to receive the kinds of dividend that shareholders customarily enjoy when the company profits have been good.

I do not, of course, pretend to be in any position to offer solutions, but that fact does not blind me to the fallacy of assuming that government bail-outs will make it all come right and stay that way.

Best,

Alistair

[gyzzzmo]

Basicly, the problem of USA's financial problems is that its entire economy is a giant bubble: everything is being bought of non-excisting money (people borrow with borrowed money and they can borrow it whether they can pay it back or not). The problem behind that is that the USA is too capitalistic since big profit based companies lead the politics, and they want more money, not a 'wiser policy'.

The reason that it has a global effect, is that all companies are connected by the share/stockmarket system.

I cant say i have alot of trust that the USA will change, since Americans have proven not to be able to learn from their own dumbness. Else guns would have been made illegal decades ago, and an idiot like Bush would never have gotten a second president period.

Gyzzzmo

[argerichfan]

I cant say i have alot of trust that the USA will change, since Americans have proven not to be able to learn from their own dumbness. Else guns would have been made illegal decades ago, and an idiot like Bush would never have gotten a second president period.

I quite agree, but the bit about Bush is oversimplified.  You need to remember who Bush was running against the second time: John Kerry, a man of few original ideas, zero charmisma, perhaps a politician of integrity, but hardly presidential material. 

Given that, it's difficult to see how he could have won against a sitting incumbent.  As it was, a fair amount of Kerry's votes were basically anti-Bush votes, not pro-Kerry votes.  Alas, there just weren't enough of them. 

[ahinton]

Basicly, the problem of USA's financial problems is that its entire economy is a giant bubble: everything is being bought of non-excisting money (people borrow with borrowed money and they can borrow it whether they can pay it back or not).

Yes, but it's more or less the same everywhere else and has been for a very long time. Most of the world's economy and its indebtedness is and has for generations been built upon next to nothing; if each country sought to have its debts instantly repaid, each would fail in that aim, because there isn't anything with which to redeem such debt. Anyone who claims to be immune to the present situation by reason of having no direct personal debt is living in cloud-cuckoo-land, since we are all in our own different ways propping up a raft of increasing indebtedness from which there is, frankly, no conceivable escape, whatever anyone tries to do about it. So we'd better all just get used to it and its ever-increasingly dire consequences; as the insurance guru and composer Charles Ives might have put it (with characteristic political incorrectitude), we should all learn to stand up and take our indebtedness like a man...

Best,

Alistair

[cmg]

I cant say i have alot of trust that the USA will change, since Americans have proven not to be able to learn from their own dumbness. Else guns would have been made illegal decades ago, and an idiot like Bush would never have gotten a second president period.

Gyzzzmo

The USA IS trying to change, but, over the last eight years Americans actually have NOT elected Bush.  A BBC report recently offered the evidence that the Republicans have been criminally manipulating voter registration laws to such as extent  that approximately 3 million Americans are/have been either disenfranchised on a registration technicality or the criminal interpretation of a technicality.  Voting machines are so few in poor Black neighborhoods in urban areas that the wait time for voting is over three and sometimes four hours.  For the rich whites, the wait averages 15 minutes.  Hundreds of voters names disappear from the rolls without explanation.  Absentee ballots are routinely discarded.  I, personally, applied for an absentee ballot a month ago and have not received it.  I applied a second time last week, given my phone query was ignored.

Strangely, only the European media really report on this.  Fox News in America, the leading outlet for what now can be called the "fascist coup" movement here, dominates the viewing market.  Liberal outlets are routinely attacked for their corrective reporting with the most outrageous of lies.  Any call for reason is shouted down by the Ultra Right.

Rogert F. Kennedy, Jr., who has been working on election reform in the US for years now, has gone on record stating that Bush was not legally elected in either election.  Voter fraud can be proven, but nothing is done.  Even our Supreme Court, stacked with ultra-conservatives, handed over the first election to him.

With the stakes very high now, this fraud could lead to the closest thing to revolution if McCain/Palin win with a cloud over the count.

So, please, don't think that all Americans support policies that have been in effect for the past eight years.  The MAJORITY of us do not.  We just can't get our votes counted.     

[gyzzzmo]

Yes, but it's more or less the same everywhere else and has been for a very long time. Most of the world's economy and its indebtedness is and has for generations been built upon next to nothing; if each country sought to have its debts instantly repaid, each would fail in that aim, because there isn't anything with which to redeem such debt. Anyone who claims to be immune to the present situation by reason of having no direct personal debt is living in cloud-cuckoo-land, since we are all in our own different ways propping up a raft of increasing indebtedness from which there is, frankly, no conceivable escape, whatever anyone tries to do about it. So we'd better all just get used to it and its ever-increasingly dire consequences; as the insurance guru and composer Charles Ives might have put it (with characteristic political incorrectitude), we should all learn to stand up and take our indebtedness like a man...

Best,

Alistair

Actually, its not 'more or less the same everywhere'. Most countries have laws for the amount of money people can borrow, depending on the finances of that person. The USA government made it possible to be in debt for tons without checking somebodies financial situation. Plus the USA has been encouraging borrowing/expending for many years because of some ancient and outdated theory that 'capitalism' fixes all problems (and ass-kissing big corps that way helps alot when trying to fund an election).

By the way, more proof that the USA wont learn from their own dumbness: Both McCain and Obama's financial plans cost alot more than America's budget can fund. Nobody seems to really care though, as long as the candidate has shiny white teeth, that person will do

gyzzzmo

[gyzzzmo]

The USA IS trying to change, but, over the last eight years Americans actually have NOT elected Bush.  A BBC report recently offered the evidence that the Republicans have been criminally manipulating voter registration laws to such as extent  that approximately 3 million Americans are/have been either disenfranchised on a registration technicality or the criminal interpretation of a technicality.  Voting machines are so few in poor Black neighborhoods in urban areas that the wait time for voting is over three and sometimes four hours.  For the rich whites, the wait averages 15 minutes.  Hundreds of voters names disappear from the rolls without explanation.  Absentee ballots are routinely discarded.  I, personally, applied for an absentee ballot a month ago and have not received it.  I applied a second time last week, given my phone query was ignored.

Strangely, only the European media really report on this.  Fox News in America, the leading outlet for what now can be called the "fascist coup" movement here, dominates the viewing market.  Liberal outlets are routinely attacked for their corrective reporting with the most outrageous of lies.  Any call for reason is shouted down by the Ultra Right.

Rogert F. Kennedy, Jr., who has been working on election reform in the US for years now, has gone on record stating that Bush was not legally elected in either election.  Voter fraud can be proven, but nothing is done.  Even our Supreme Court, stacked with ultra-conservatives, handed over the first election to him.

With the stakes very high now, this fraud could lead to the closest thing to revolution if McCain/Palin win with a cloud over the count.

So, please, don't think that all Americans support policies that have been in effect for the past eight years.  The MAJORITY of us do not.  We just can't get our votes counted.     

Even if this is true, those few million shouldnt have mattered. Bush had proven himself to be very incapable to even tie his own shoes and practicly did everything wrong what he could have done wrong. Nevertheless half of America chose him.
Capitalism rules the USA, not wisedom.

[ahinton]

Actually, its not 'more or less the same everywhere'. Most countries have laws for the amount of money people can borrow, depending on the finances of that person. The USA government made it possible to be in debt for tons without checking somebodies financial situation. Plus the USA has been encouraging borrowing/expending for many years because of some ancient and outdated theory that 'capitalism' fixes all problems (and ass-kissing big corps that way helps alot when trying to fund an election).

In what I said here I was not just talking about personal indebtedness but also that of corporations and governments; that's what I meant about it being 'more or less the same everywhere' and, for the avoidance of any further doubt, I would add (as I should perhaps have done first time around) that I mean 'more or less the same' in principle rather than in actual amounts, for it is obvious that, in terms of amounts alone, the US situation is far from 'the same' as that which is afflicting other countries.

Best,

Alistair

[cmg]

Even if this is true, those few million shouldnt have mattered. Bush had proven himself to be very incapable to even tie his own shoes and practicly did everything wrong what he could have done wrong. Nevertheless half of America chose him.
Capitalism rules the USA, not wisedom.

Actually, those "few million" votes are VERY significant.  Americans, as you may or may not know, don't directly elect presidents.  The Electoral College does that.  A smallish group of people, elected by voters, who by tradition only, take the winner of the popular vote in their state and toss their electoral votes to him.  There are 538 of these people.  And they vote for the president.  Not the other 90 million citizens who usually cast ballots. 

If McCain gets 10,000,000 popular votes in Ohio and Obama gets 9,999,999, McCain gets the ENTIRE number of electoral votes in that state. 

So, you see, a "few million" votes is extrodinarily significant.