math is hard!
Sep. 30th, 2008 04:55 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
sabLook, I only understood the nuts and bolts of the financial crisis as far as it pertained to Fannie, Freddie and foreclosed mortgages. Obviously other stuff is going on, and I want to be able to have a legitimate opinion on whether using our funds to bail out big institutions is... beneficial for us in the long run?
Then I got this petition in the mail: http://financialpetition.org/petition-nobail.shtml and I swear I don't even understand the crux of the petition any more than I understood Pelosi's speech.
The one thing I did understand, or thought I understood, yesterday, was the cooperation of world banks to put aside dollars and invest in other, more stable currencies. But then, how long can the Euro stay stable if the dollar is in flux? Actually, that counts as another question.
So,![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
qowf, jeviltwin, etc etc, can you take a look at the petition, tell me what it's saying, and try and explain the pros and cons of the bailout to me like I'm three?
If you're looking for a safe place to put your money, I've learned there's good projections for amateur/unrepresented Hungarian art; apparently it's safer than gold or bonds.
ETA:
From my father, a short (and helpful, to me) tutorial on the banking crisis and what the mortgage bailout has to do with it:
Banks loan money for mortgages and other things. Let's talk about mortgages.
Some borrowers have better credit than others obviously. The banks in an effort to build their business began to let their credit requirements slip and began to loan to subprime lenders whose credit wasn't so good expecting that, as in the past, the value of the homes would appreciate and they would be covered for risk.
Now, banks need money to make these loans. That's how they make money. On the interest from their lending.
To get more money, so they can make more loans, they 'bundle' these mortgages, good, excellent, and bad credit risks into a package of let's say ten million dollars and sell these mortgages to investors. Fannie Mae was one such investor.
The security for the mortgage is the house and the borrower's credit. If the value of the house goes down then they don't have so much security and, indeed, the value of the house may wind up being less than the mortgage amount. In bad times, borrowers sometimes can't pay their mortgages. If the bank repossesses these mortgages that it still owns, and tries to sell the underlying security [the house] they frequently find they can't get their money back. And, of course, the borrower has lost his/her home.
The same is true of the investors who bought the bundle of mortgages. If the mortgages goes bad they are stuck. That's what happened w/ Fannie Mae.
So, now, the banks not only have bad loans, but they don't have any money to make more loans. No one wants to buy these mortgages from them.
And if they don't have money to loan for mortgages, then they don't have money to loan for other purposes either, like student loans, or business loans. The credit market has dried up. Business stops. The businessman can't get a loan to buy machinery or inventory. His business slows down and he is in trouble. He can't hire. People lose jobs. An ever increasing downward spiral.
The global implications occur because this is a Flat World. All the banks all over the world are interconnected either because they lend money to one another or because the do joint deals. Everyone is affected.
There is currently this terrible credit crunch, because, among other things, the housing market sucks.
The bailout was so that the Government can buy up all these 'dead' mortgages so as to put money into the banking system. If you buy these mortgages at the right price and we get through this mess somehow, the government could even make a profit as fewer defaults than they expected happen and fewer people have to give up.
But, in the rush to put together this bailout plan many things were skimmed over. For example, the Treasury Secretary, the current one and future ones, would have unlimited personal power to buy and sell these mortgages and at any price he set without having to resort to an auction system or anything else that could mediate value. The CEOs of banks could continue to make millions of dollars in compensation taken from the new money put into the banks. Everyone is hollering do something, and not enough thought is going into making sure it is being done right.
So, some wiser heads are saying "why is it we never have time to do things right and we always have time to do it over." And in this political year they are being heard.
Does that help? I remember telling one lil shrimp to take an economics course. ;-)
love,
Dad
///
I still don't understand the pros and cons of the $700B buyout as far as what other options there might be to restore the financial industry. Is there a way to solve the crisis bottom-up instead of this trickle down from banks through loans and industry? Some sort of government oversight committee set up to put caps on mortgages and make sure the homes get back to their low-income borrower/owners? What kind of checks and balances can we put in place to make a buy-in like this $700B work for the people?
Then I got this petition in the mail: http://financialpetition.org/petition-nobail.shtml and I swear I don't even understand the crux of the petition any more than I understood Pelosi's speech.
The one thing I did understand, or thought I understood, yesterday, was the cooperation of world banks to put aside dollars and invest in other, more stable currencies. But then, how long can the Euro stay stable if the dollar is in flux? Actually, that counts as another question.
So,
qowf, jeviltwin, etc etc, can you take a look at the petition, tell me what it's saying, and try and explain the pros and cons of the bailout to me like I'm three?If you're looking for a safe place to put your money, I've learned there's good projections for amateur/unrepresented Hungarian art; apparently it's safer than gold or bonds.
ETA:
From my father, a short (and helpful, to me) tutorial on the banking crisis and what the mortgage bailout has to do with it:
Banks loan money for mortgages and other things. Let's talk about mortgages.
Some borrowers have better credit than others obviously. The banks in an effort to build their business began to let their credit requirements slip and began to loan to subprime lenders whose credit wasn't so good expecting that, as in the past, the value of the homes would appreciate and they would be covered for risk.
Now, banks need money to make these loans. That's how they make money. On the interest from their lending.
To get more money, so they can make more loans, they 'bundle' these mortgages, good, excellent, and bad credit risks into a package of let's say ten million dollars and sell these mortgages to investors. Fannie Mae was one such investor.
The security for the mortgage is the house and the borrower's credit. If the value of the house goes down then they don't have so much security and, indeed, the value of the house may wind up being less than the mortgage amount. In bad times, borrowers sometimes can't pay their mortgages. If the bank repossesses these mortgages that it still owns, and tries to sell the underlying security [the house] they frequently find they can't get their money back. And, of course, the borrower has lost his/her home.
The same is true of the investors who bought the bundle of mortgages. If the mortgages goes bad they are stuck. That's what happened w/ Fannie Mae.
So, now, the banks not only have bad loans, but they don't have any money to make more loans. No one wants to buy these mortgages from them.
And if they don't have money to loan for mortgages, then they don't have money to loan for other purposes either, like student loans, or business loans. The credit market has dried up. Business stops. The businessman can't get a loan to buy machinery or inventory. His business slows down and he is in trouble. He can't hire. People lose jobs. An ever increasing downward spiral.
The global implications occur because this is a Flat World. All the banks all over the world are interconnected either because they lend money to one another or because the do joint deals. Everyone is affected.
There is currently this terrible credit crunch, because, among other things, the housing market sucks.
The bailout was so that the Government can buy up all these 'dead' mortgages so as to put money into the banking system. If you buy these mortgages at the right price and we get through this mess somehow, the government could even make a profit as fewer defaults than they expected happen and fewer people have to give up.
But, in the rush to put together this bailout plan many things were skimmed over. For example, the Treasury Secretary, the current one and future ones, would have unlimited personal power to buy and sell these mortgages and at any price he set without having to resort to an auction system or anything else that could mediate value. The CEOs of banks could continue to make millions of dollars in compensation taken from the new money put into the banks. Everyone is hollering do something, and not enough thought is going into making sure it is being done right.
So, some wiser heads are saying "why is it we never have time to do things right and we always have time to do it over." And in this political year they are being heard.
Does that help? I remember telling one lil shrimp to take an economics course. ;-)
love,
Dad
///
I still don't understand the pros and cons of the $700B buyout as far as what other options there might be to restore the financial industry. Is there a way to solve the crisis bottom-up instead of this trickle down from banks through loans and industry? Some sort of government oversight committee set up to put caps on mortgages and make sure the homes get back to their low-income borrower/owners? What kind of checks and balances can we put in place to make a buy-in like this $700B work for the people?
