| What caused the financial crisis? | |
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| Jan 6, 2009 22:19 |   |
 | What caused the financial crisis? As for the reasons, some people had some very "brilliant ideas". Paulson, who will step down as US Treasury Secretary, said that the high saving rates in those emerging markets caused by global imbalances led to the cause of the global economic crisis. Do you know why there was bubbles in US real estate? It was Chinese people's fault. Bernanke, the president of US Fed said that the high saving rates in China attributed to the real estate bubble in the US. What do you think of those two big-shots' views? You can have a look at this page: http://www.earnmoremoney.com.cn/ |
| Jan 7, 2009 20:31 | #1 |
| Well if the Chinese didn't have an inferiority complex before this, they may have one now. :) Seriously though, Jimmy you are correct, those two are big-shots with no legitimate reason to make those remarks and unfortunately no legal way to sue them either. In other words they are full of hot air! It's sad, but when the Americans are in trouble they look outwards to find blame (blaming Iraq for 911, nukes etc.) blaming China for the U.S.'s economic mismanagement etc.. |
| Jan 8, 2009 19:02 | #2 |
| If you take a look at Paulson's resume, you will find he belongs to the biggest winners' group during this chaotic game that results depression. |
| Jan 14, 2009 00:31 | #3 |
| In a word .... The Democrats. I'm not quite sure how everyone missed this, but here is a quick overview. Fannie Mae was created by Franklin Roosevelt in 1938 to aide American families to purchase a house, which is of course the all American dream. A very worth while jesture at that time. They started out as a Federal agency and in essensence bought/guaranteed mortgages from banks, which in turn allowed the banks to lend more money to new home buyers. Needless to say, the banks would only lend to credit worthy borrowers, such as people with stable jobs who had a chance of re-paying the loan. But here is when it started to go south, the Democrats started to use this agency for their own gain. In the early 70's, Obama, when he was with the Acorn group, sued a group of banks for not lending to less desirable credit risks, i.e. people with little or no job history, bad credit, etc., which were composed mainly of minorities. The charge was that the banks were "Red Lining" solely for the reason of racisim. Despite the banks argument of credit risk, and the adversion to bad loans, Obama countered with Fannie Mae who would buy up most of these loans and it was the banks responsibility to lend to these higher risk borrowers. Guess what, he won and down the slipperly slope we went. When Jimmy Carter (Democrat) entered office, he decided that Fannie Mae was such a solid on going concern, he decided to "Privatize" the agency but didn't want to create a monopoly. So he created Freddie Mac, which did the same thing as Fannie Mae and was also a private company. And guess who got the CEO and high executive positions? Democratic party leaders and officials. Then when Bill Clinton (Democrat) entered office, he deregulated the reporting requirements for both companies and instructed them to start buying even higher risk loans before he left office. And guess who was the CEO of Freddie Mac who just stepped down after the crisis? Bill Clinton's White House Financial Advisor! Now here is the funniest part, Franklin Raines was the CEO of Fannie Mae in 2001/2 and was fired because he was "manipulating the books" and falsifing documents. But did he face any criminal charges? NO! Was he allowed to keep his $50 million dollars in bonuses? YES! But that is not the funny part, the funny part is that he is now the new Financial Advisor for Obama! If it wasn't so halarious I would cry. |
| Jan 14, 2009 00:31 | #4 |
| Now here is the not so quick explaination of the crisis. Fannie and Freddie basically bought loans from banks at a discount. So for example, if the bank makes a total of $100 million in loans at let's say 10%, Fannie and Freddie would buy them for a 9% return letting the banks keep 1% for making and managing the mortgage, and giving them back $100 million to make more loans. Well after a while Fannie and Freddie would have billions and billions of dollars in mortgages, so what they did was to "Securitize" large buckets of loans and issue something called an "Asset Backed Security" which paid an interest rate that was much higher than the US Treasury Bill. Since these asset backed securities represented huge volumes of loans, the percentage of normal failure rates (non paying morgages) would not effect the interest pay out. Plus with the "Preception" of US backing, it made these securities highly liquid and considered to be as good as a US T note, but with a much higher rate of return. As a result, every bank, brokerage house, pension fund, and even private companies would use these instruments to "park" its cash since it had a higher return and could be liquidated overnight. But over the past 5 - 8 or so years Fannie and Freddie started to incurr higher losses due to the aggressive buying of higher risk mortgages instructed by Clinton. But because the CEO's bonuses where tied to profitability and thanks to Clinton's de-regulations of reporting requirements for both, they all hid the losses so they could collect their $90 million dollar bonuses each year. So when the news was revealed, no one knew the extent of the losses and everyone dumped these securities at once just to find out no one wanted them. So this highly liquid security became un-sellable. Needless to say, every domestic and foriegn entity who held these securities became highly illiquid overnight. Banks liquidity ratios went upside down preventing them to make anymore loans, business' could not make current liabilities to pay employees and vendors, and the economy stopped dead in it's tracks. |
| Jan 14, 2009 00:31 | #5 |
| Now here is my take, it is not so bad if anyone really looked at what actually happened to these securities. As of date, there is about 5% of non performing loans identified in the pool. Most Americans are paying their mortgages. And remember, these securities are secured against real estate. So is the real estate worth 100% of the purchase price? No. 70%?, maybe, 50%? absolutely. Real estate prices outside of Florida, has only fallen 20-25% at most. So the real loss is no more than half of 5%. The securities are still paying interest to those who own them and the only problem I see is liquidity (being able to sell them). The $700 Billion dollar bail out was suppose to back these securities (I thought) and re create the market and provide liquidity which should have resolved the original problem, But for some starnge reason I can't fathom, half of the bail out money was used but not for that purpose. Instead, Bernackie bought up credit card debt with the money and then there is the bank, AIG, and auto makers bail out. Confidence is the new problem that I see and the people who caused this mess are now running the show. God help us all. |
| Jan 14, 2009 18:57 | #6 |
| what causes deep deficit and what triggers consumers losing confidence in real estate? It's easy to pick up a scape goat to protect those who make conspiracy which is out of fear and greed. Ruin is much easier than construction. Players could continue making it until real crisis coms as long as they have still power. However, it is time for doers to do something that the players are not able to handle. |
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