a summary for the people that don't want to listen:
a bunch of people with a lot of money want something to invest in. they find that mortgages have a pretty good return and buy shares of mortgage loans. the lower level mortgage companies finish giving out loans to all the credit worthy people and begin lowering their standards and make worse and worse loans. They sell these loans to big wall street banks. wall st bunches bad loans together, calls them a good loan, and then sells them to investors.
wall st realizes that those loans are defaulting a lot so they stop buying them. the smaller mortgage companies that borrowed huge amounts from banks(like citibank) with very little money and can no longer sell them to wall street to pay back their loans so they go bust.
lots of loans are defaulting everywhere so the banks no longer want to risk any money at all so they stop giving out loans.
Americans suck at fiscal responsibility. What's new?
I've never even come close to maxing out my credit card, and I always pay it off on time. I really have no idea how people get into credit card debt.
Other loans and such are larger, I suppose, but similar in nature; thus, I don't understand why people can't pay those off. Goddamn. Get fucking jobs, don't take loans you can't pay back - don't people have consciences?
A lot of people are stupid and spend more than they can afford using credit cards and then they get into debt which is bad for them, or declare bankruptcy which is bad for all the people they owe money too because then they don't have to pay it back.
Some people buy a very expensive house/car that they can't pay for and then declare bankruptcy and then can keep their luxurious stuff because certain items are protected like your "home" and stuff. People who abuse the law like that are definitely a part of the problem.
those mortgage companies were borrowing hundreds of millions when they only had 5million. They would use that money to help people finance mortgages and then sell those to banks for more than what they borrowed.
so it's like borrow 100million with 0. use that to give loans. sell those to wall st for 101million => you made 1million with no money. they got fucked when wall st stopped buying.
this isn't about credit card debt (in the tens of thousands). these are home loans that are hundreds of thousands. most people borrow money to buy a house . not many people have 500k to pay upfront.
The problem here was the big investment banks got too smart for their own good.
They figured out a way to make it so their CMOs could be structured so that even at a 15% default rate they wouldn't lose a dime, with the way the structured the tranches in the CMOs. This let them lend to whoever they wanted without doing credit and background checks.
Unfortunately the default rate on this stuff has gone up to something around 30% and is still climbing and all the banks are getting reamed, so yeah. That's the credit crisis way too simplified.
Just blame it on Greenspan for not regulating loan standards and leaving the interest rates low for too long.
The problem isn't that Americans are dumb. When you say that, you're suggesting that Europeans, under similar circumstances, wouldn't make the same mistake. Maybe part of it owes to lower financial literacy, but the bulk of the blame lies with the lenders who transferred the risk of bad loans to people everywhere. Keep in mind it wasn't just Americans who invested in these bad bonds... it was investors overseas too. If there's a cultural problem, it has to do with investors, not the common American.
edit: I only caught part of the program the other day... but from what I remember a good metaphor for what was happening is like if you kept paying for credit cards with cash outs from other cards. eventually someone would realize what's going on and stop lending you money, at which point everyone involved would realize that they've been swindled.
On June 23 2008 12:28 Last Romantic wrote: Americans suck at fiscal responsibility. What's new?
I've never even come close to maxing out my credit card, and I always pay it off on time. I really have no idea how people get into credit card debt.
Other loans and such are larger, I suppose, but similar in nature; thus, I don't understand why people can't pay those off. Goddamn. Get fucking jobs, don't take loans you can't pay back - don't people have consciences?
We can blame Greenspan for it all, I guess, if we really have to look for a figurehead to blame. Though honestly no one was calling up things like that during his terms as the Fed's policymaker, only thing we have to bring on him is through the mighty eye of hindsight.
About American's spending habits, while it is pretty amazing retarded in many ways, most people do try to pay off their debt via hard work. They have the proper work ethics for it, simply bad spending habits, I wouldn't bash them that hard, it isn't something that one learn too easily with a culture that has always enjoyed a good degree of prosperity.
EPT
