New Age History and Economics

The Day We See The Truth And Cease To Speak it, Is The Day We Begin To Die. MLK Jr.

Wednesday, February 1, 2012

2008 stock market meltdown in layman’s terms

Dear brethren,

The Bailout occurred because the US Mortgage market was in a trillion dollar debt. Basically banks were lending money to any joe sho with or without a job. People who worked at McDonalds for $8/hour were getting mortgages on their homes, and then re-financing for 2nd or 3rd terms. This caused a bubble in the market. So basically if you buy a house for $200,000 through a mortgage, now your home has bubbled up to $400,000 so you made money if sold now, but who will actually sell their home at this point when all other housing price went up just as high it would be a lateral move. When the bubble collapsed the value of the homes dropped since the supply heavily outweighed the demand so now your home is worth $100,000. Your house might be worth $100,000 but your mortgage is for $200,000. Instead of paying of your mortgage because it is stupid to pay 200% on something that’s only worth 100% you declare bankruptcy and the bank forecloses on your home. The debt is still oustanding and the value of the home is nowhere near where it should be so the bank or lender who gave you the mortgage takes the hit and they lose $100,000. Multiply that by millions of people and you get a trillion dollar debt.

The government also owes a debt of their own. This is to the Federal Reserve, a privately owned bank. The Federal Reserve prints money and controls how much money is in circulation but the tricky part is that they "lend" the money to the US Government, so for every dollar they Print, US owe them a % in interest. This is known as the national debt. In order for the government to bail out all these people they needed to print more money which caused inflation. So more money is required so more money is printed and Federal Reserves earns more interest and US goes deeper into debt on account of interest on more money that is printed. Housing bubble and Federal Reserve were pivotal to each other which made 1% that is top guys more rich and the hard working Americans poorer.

You could also just blame George Bush and his Administration for allowing such banking policies to take place.

Kaps.

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