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Sorry if this sounds like a stupid question but..
How did this whole financial crisis start? What are the main contributing factors to our dwindling economy? How long can we expect it to go on for and will there be any lasting effects?
My mind is still trying to get over the wall street learning curve and I'm having trouble seeing the big picture and how all the pieces fit together.
I've read tidbits here and there but it seems rather odd that this financial catastrophe came tumbling out of nowhere.
People are offered mortgages who can only afford them if the price of the house goes up and their income remains the same or goes up.
Mortgage companies sell these mortgages to investment banks
Investment banks package these mortgages into derivative products with large amounts of leverage
Banks, institutional investors and the general public invest in these products
Rating agencies underestimate the risk associated with these products
Banks and institutions take loans against these products, with interest rates associated with the underrated risk.
Housing value's decline rapidly
There's a whole hilarious slideshow on google about how the whole mortgages thing came about. I'm sure someone on here has seen it, has it saved, and can show it....but in the meantime I'll ask another forum I visit where I first saw it.
Yea I used to work for these sub prime mortgage companies. I approved a bunch of those loans, so I might have been a part of all this mess but I was a very small part.
Aiki did a great job explaining, its like that guy is book of knowledge or something. He knows everything.
Quick, what's the capital of Ontario, CA?
Like all bubbles, greed took over from common sense and respect for the long term. The scary part is that the establisment was just as stupid as everyone else. When it comes to war and finance people have insanely short memories. When the final sh*t hits the weary fan and it all starts getting better, let's see if we can recognize the next bubble.
It started with hippies and the "live for today" revolution. Knowing the "bomb" could drop at anytime led to spending, over spending and not saving. Greed at the corporate level sent jobs away and tech and auto developed "must have" toys with built in obsolescence. Nobody cared since you were gonna die. Dropping out and drugs exacerbated the movement. Get all you could of sex, drugs, rocknroll. Then, grab all the money you could, once it became obvious nobody had a gun to your head and had to re-assimilate into society.
In the 90's, I became aware of the dismal savings rate. I knew then, that the events of this week would happen. Especially when I saw real estate bubble up.
Except hippies, N. California and the counterculture had a lot to do with the development of the personal computer, which contributed to the productivity gains of the late 20th century. And, the amazing run my stock portfolio (and yours, too) had during that time.
