Regarding U.S Economy.

[Dimmauk]

People will be foaming at the mouth to buy properties from the Government.

[Maxxthepenguin]

What exactly happened to the banks? I find it hard to believe that these banks just threw money at anyone without thinking just because the Government regulations were gone. Did they know they were going to get bailed out? If that's the case, let them fall.

The problems are numerous, but the main thing is when they had the great idea to trade mortgage-backed securities. It was seen as a way to increase profits on mortgages, which were previously only mildly profitable compared to other loans. It made mortgages insanely profitable, so profitable that it became a pillar of our markets. Make no mistake; it was high risk, but real estate was long thought of as a stable market, people thought "God aint makin no more land". The profits were so huge that the naysayers, and there were some, were marginalized. They were seen as just doomsday thinkers who were trying to curtail great economic progress. There was a lot of sound economic theory behind the mortgage backed investments. It wasn't some wackos who came up with it. The fact that it became a pillar was its greatest downfall. The success was extended into high risk mortgages since the demand was so high. Eventually, the market had a negative effect on the poor people who were given these high risk subprime mortgages, and more went belly up than was expected. It made the people trading these securities panic; these were seen as guaranteed profit! The pillar of mortgage securites was so important, that with it came an even even larger downturn. As the downturn increased, less people could pay mortgages. It was cyclical. Now, you might say it was forseeable and the companies should have seen it coming, but the fact is they didn't (largely because of the methods currently used to analyze markets make it preferable to focus on short term growth; yay quarterly reports!) and, because many, many americans have mortgages with them, they must be taken care of.

I have no idea if that makes much sense or answers your question (I rambled and left some stuff out), but there ya go.

[Vandalhart]

To my understanding:

Basically, the banks lent money to people who could not afford to pay their mortgates.
It was kind of a like a credit card with a buy now, pay later attitude.

People borrowed the money for their home at sub-prime amounts for a set amount of time. Then after the time ran out (3 months-12 months whatever) the bank jacked up
the payment to the proper amount and people couldn't afford it. The bank had to reposess the properties. Because there were so many properties out there, they have to compete with other banks selling causing them to lower the price.

I don't know a lot about this, so I could be wrong, or incorrect.. feel free to let me know if that's the case.

[Demetrius*]

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

[Dimmauk]

I hear the buyout might cost an average of 10k/yr per household.

[The Blackrose]

http://www.threepanelsoul.com/comics/098.png

Goddamn you, I came here to post that!

[aurik]

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

This is really a red herring.

[Maxxthepenguin]

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

approximately half of the loans were made by independent mortgage companies which were not regulated by CRA at all, and thus had no government obligation to offer credit to minorities. These companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders had very little CRA involvement.[8] Further, the weakening of the CRA in 2004 was followed by intensified subprime lending

CRA has little to do with this. Companies didn't need to construct securities out of the few mortgages that the CRA enabled.

[aurik]

http://blag.xkcd.com/2008/09/23/fede...a-short-story/

[archibaldcrane]

http://blag.xkcd.com/2008/09/23/fede...a-short-story/

I approve of this chicanery.

[gt_killa]

A little boy goes to his dad and asks, "What are Politics?"

Dad says, "Well son, let me try to explain it this way:

1. I'm the head of the family, so call me The President.

2. Your mother is the administrator of the money, so we call her the Government.

3. We're here to take care of your needs, so we'll call you the People.

4. The nanny, we'll consider her the Working Class.

5. Your baby brother, we'll call him the Future.

Now think about that and see if it makes sense."

So the little boy goes off to bed thinking about what Dad has said.

Later that night, he hears his baby brother crying, so he gets up to check on him.

He finds that the baby has severely soiled his diaper. So the little boy goes to his parent's room and finds his mother sound asleep. Not wanting to wake her, he goes to the nanny's room. Finding the door locked, he peeks in the keyhole and sees his father in bed with the nanny. He gives up and goes back to bed.

The next morning, the little boy says to his father, "Dad, I think I understand the concept of politics now."

The father says, "Good, son, tell me in your own words what you think politics is all about."

The little boy replies:

"The President is screwing the Working Class,

While the Government is sound asleep.

The People are being ignored

And the Future is in deep shit!"

[Amele]

To my understanding:

Basically, the banks lent money to people who could not afford to pay their mortgates.
It was kind of a like a credit card with a buy now, pay later attitude.

People borrowed the money for their home at sub-prime amounts for a set amount of time. Then after the time ran out (3 months-12 months whatever) the bank jacked up
the payment to the proper amount and people couldn't afford it. The bank had to reposess the properties. Because there were so many properties out there, they have to compete with other banks selling causing them to lower the price.

I don't know a lot about this, so I could be wrong, or incorrect.. feel free to let me know if that's the case.

yeah, you missed the part where the banks* sold the debt back and forth to each other, raising the price faster than the pot in a no-limit game of poker between billionaires until someone actually tried to cash out and found out that the total 'debt' they'd created between themselves was somewhere north of the entire world's GDP* and then came crying to Uncle Sam to bail them out of it.

I say what Buffet says; no bailout - if the American taxpayer puts into the system, they get equity in the company commensurate with their investment; same as any other investor.



*investment houses, hedge funds, financiers, etc

*obviously this is somewhat hard to measure; the world bank estimates the world GDP to be approximately 54,000b (54t) other estimates (CIA; IMF, etc) fluctuate around 10% of this figure.

[Vandalhart]

Okay, I knew I could have been screwing something up there with what I typed.

[Remyo]

can someone dumb this down, just a tad. I'm seeing conflicting things on how this is good/bad and the facts they use to back them up is a little over my head.

[Maxxthepenguin]

can someone dumb this down, just a tad. I'm seeing conflicting things on how this is good/bad and the facts they use to back them up is a little over my head.

It's all because of quarterly reports taking precedence over long term risk adverse thinking.

That didn't help did it.

Really, it's big, complicated, and sucks. I'm just lucky I have a dad who is a (damn good) financial analyst/advisor who gets this shit.

[pohibaba]

I'm just lucky I have a dad who is a (damn good) financial analyst/advisor who gets this shit.

Wow, Jewish stereotypes are true, huh?

[Ksandra]

can someone dumb this down, just a tad. I'm seeing conflicting things on how this is good/bad and the facts they use to back them up is a little over my head.

In a nutshell, never get variable rates on a house, always go fixed even if it's means you can't get one right away (if they don't fix this shit no one is going to be able to afford houses anyways).

To dumb as best I can:

Banks went to lots of poorer people/young people and offered them very low rates for the first 3-4 years of their mortgage. The selling point was "in 4-5 years you'll be getting payed more so can afford more on the house!" But wages didn't really scale upward like the banks had them believe. With gas/food/etc. rising, after the 4 years were up (wave started maybe 1-2 years ago) those people could no longer make payments on their home.

Normally, this wouldn't be a bad situation for the banks except for the large scale they did it for. Thousands of people have lost their homes because of this, and the market prices of homes are extremely high so not only did people lose their homes, others can't afford to get one. Leaving the banks with tons of repossessed homes that won't sell.

Since banks have made a major of their money from the home business it fell flat fast and now they aren't generating enough money elsewhere and are falling apart.

[Day]

So is it a good time to buy a home if you can afford it?

[Correction]

So is it a good time to buy a home if you can afford it?

Good luck getting a loan.

[Day]

=(