I'm a moron...

[fellowtraveler]

...when it comes to this high finance stuff.

Can someone direct me to a layman's explanation (or explain in simple terms) what the current fuss is all about?

It seems to me it's all about institutions lending money for mortgages that people are defaulting on.

I can see where that would put the companies out of business. But am I to understand that in the meantime, they continue to foreclose and put people into the street? Does that mean that the institutions will have "bailout" money to continue to do business, but that thousands of people will still lose their homes? Would it not be better to funnel the billions through the homeowners to the institutions so they can keep their homes, and not become an additional burden on society?

I'm only one guy, but maybe others will benefit from understanding a bit more. I want to voice my opinion to my professional politicians but I can't unless I understand the problem.

Thanks.

[Angela]

You're not a moron. That's what's going on -- these people who are trying to manipulate us using fear tactics, using sleight-of-hand to distract us from the fact that instead of giving us real information, we're being fed this "red alert" crap. I'm hearing many, many people asking, "Why is no one at the heart of this explaining in a way I can understand what is happening and why such dire consequences are being predicted if we don't hand over $700 billion RIGHT NOW?" It's a classic con. And it reminds me very much of what happened after 9/11.

You know, there are plenty of people here on these forums, and in the world, who have opinions on this economic crisis. But the thing I think is important is: Why doesn't Paulson do a sober press conference explaining for the layman what's going on, and taking questions rather than ducking them? One of my questions for him is: Why did your original plan contain absolutely no conditions for oversight, and virtually unlimited power for yourself? Explain to me, please, why you felt that was necessary, Mr. Secretary of the Treasury!

[Technicolor Tim]

Originally Posted by fellowtraveler

...when it comes to this high finance stuff.

Can someone direct me to a layman's explanation (or explain in simple terms) what the current fuss is all about?

It seems to me it's all about institutions lending money for mortgages that people are defaulting on.

I can see where that would put the companies out of business. But am I to understand that in the meantime, they continue to foreclose and put people into the street? Does that mean that the institutions will have "bailout" money to continue to do business, but that thousands of people will still lose their homes? Would it not be better to funnel the billions through the homeowners to the institutions so they can keep their homes, and not become an additional burden on society?

I'm only one guy, but maybe others will benefit from understanding a bit more. I want to voice my opinion to my professional politicians but I can't unless I understand the problem.

Thanks.

First, you need to understand the fundamentals of this crisis. They are kinda simple and slightly complicated at the same time. Sure, this is very much about people who can't pay their debt, but the roots of the problem go deeper than that. Ron Paul's former economic advisro Peter Schiff was one of the most outspoken predictors of this crisis. Here's a series of clips from a talk he had with mortgage brokers in 2006, where he clearly and in simple terms explains the problems.

YouTube - Nov 2006 Peter Schiff Mortgage Bankers Speech Part 1 of 8

No matter how you attack the problem now, you're going to see a crash. If they do go through with the bailouts, and there's still a good chance of that happening, people will still lose their homes. After all, too many people took up loans they couldn't afford to buy houses that weren't worth what they paid for them, and of course these people's opportunity to do so causes housing prices to go up even further. We're in a big, big, big bubble that the subprime thing has just poked a big hole in. Even if you gave lots of money to struggling home owners, the US would still be in a whole heap of trouble, because that money must come from somewhere, and there really isn't any. If more money is created out of thin air, that will just postpone the inevitable crash - and make it even bigger. Also, the housing prices NEED to come down, so by helping home owners pay their loans you'd just keep propping up the bubble. There's no easy solution, because people - that includes people who take up loans they can't afford to buy overpriced houses as well as clowns in government and fed - messed up. BIG time.

So are we - even us non-americans -in trouble no matter what they do now? Yes, absolutely. It's just money, though.

[Technicolor Tim]

Here's more about what your beloved government is doing to you:

(David Walker of the Government Accountability Office). This is from March this year.

YouTube - The U.S. Economy is Unsustainable

[fellowtraveler]

Originally Posted by Angela

You're not a moron. That's what's going on -- these people who are trying to manipulate us using fear tactics, using sleight-of-hand to distract us from the fact that instead of giving us real information, we're being fed this "red alert" crap. I'm hearing many, many people asking, "Why is no one at the heart of this explaining in a way I can understand what is happening and why such dire consequences are being predicted if we don't hand over $700 billion RIGHT NOW?" It's a classic con. And it reminds me very much of what happened after 9/11.

You know, there are plenty of people here on these forums, and in the world, who have opinions on this economic crisis. But the thing I think is important is: Why doesn't Paulson do a sober press conference explaining for the layman what's going on, and taking questions rather than ducking them? One of my questions for him is: Why did your original plan contain absolutely no conditions for oversight, and virtually unlimited power for yourself? Explain to me, please, why you felt that was necessary, Mr. Secretary of the Treasury!

They ain't talkin', LOL. I doubt they're even afraid - they have their money already.

[fellowtraveler]

Originally Posted by Technicolor Tim

Here's more about what your beloved government is doing to you:

Thanks for both posts, Tim, although I haven't "beloved" my government since JFK was killed.

If it all goes to hell, I might have to postpone my spiritual progression - there are plenty of fat squirrels in the sideyard every morning...

[Technicolor Tim]

Originally Posted by fellowtraveler

Thanks for both posts, Tim, although I haven't "beloved" my government since JFK was killed.

If it all goes to hell, I might have to postpone my spiritual progression - there are plenty of fat squirrels in the sideyard every morning...

Haha, you made me go lol with that one! However, I think the squirrels are probably safe. I sure hope they are, who doesn't love squirrels?

What this will lead to is impossible to exactly predict, of course, but what it probably means economically is that people's standard of living will go down for at least a few years. I couldn't tell you what it means socially - could be good, could be bad. Lots of people losing their houses and ending up in debt while interest rates go through the roof isn't a pretty scenario, but let's hope it doesn't come to that.

If I was living in America right now, I'd probably expect to have to work more in the coming years. The key thing here is to start producing again, and not live above your means. Also, if I had debts I'd do my best to pay them off - we don't know where the interest rate is going to go. And I'd probably even sell my house and rent for a while. That I would have done a couple of years ago, though.

[Angela]

Originally Posted by fellowtraveler

They ain't talkin', LOL. I doubt they're even afraid - they have their money already.

Yeah, and maybe they should be afraid, because we are ripe for revolution!

[fellowtraveler]

Originally Posted by Angela

Yeah, and maybe they should be afraid, because we are ripe for revolution!

There are plenty of people with stockpiled firearms, but I assume that's not what you're talking about. Those people make me laugh because one Blackhawk can handle a lot of deer rifles....

What we need is a political revolution, of course. But then...you have the Animal Farm syndrome.

[tycoondreamer]

You have the basics down. It's people who can't afford their mortgages and are getting foreclosed on that are causing the problems. There are other things involved too.

Here are some components of the meltdown:

1. Subprime mortgages - these are mortgages that are granted to individuals with poor credit rating. Predatory lenders make their money when home buyers borrow. So they lend and lend with little regard as to who can pay. Some of these mortgages don't even require you to state your income or assets. Basically you can buy a house even if you don't have a job to pay for it.

2. ARM (Adjustable Rate Mortgages) - these mortgages have a low introductory rate like 2% for the first 3 years. After the 3 years, the rate shoots up to whatever the going rate is. The problem with this is that borrowers think they can afford the payments because the payments in the first few years are so low.

3. Overheated Housing Market - Because it was so easy to borrow money, home prices shot through the roof. There were way more buyers than sellers and home prices were doubling and tripling for no fundamental reason except hype. It's almost like a Ponzi Scheme. Someone was left holding the bag when the market cooled.

4. The Glass-Steagall Act - A bill passed in 1933 that created a wall between commercial banks and investment banks. Commercial banks are your friendly neighborhood retail banks that lend money for cars, homes, appliances, etc. Investment banks are banks that invest in securities and other high-risk, exotic investments.

The Act was designed to protect John Q Public's deposits from being at risk in investments and instead was supposed to be used for safer, more conventional loans.

The Gramm-Leach-Blilley Act of 1999 repealed provisions of the G-S Act. This is why McCain is in trouble because Gramm's a Republican and is now serving as one of McCain's Campaign advisors.

"The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities." - Wikipedia

You see, banks can package together a bunch of their loans into one security and sell it off to another bank. Before the G-L-B Act of 1999, banks couldn't invest in these types of securities. They're considered exotics. But Gramm pushed for the repeal and banks were then able to function as an investment bank.

That's when the trouble started.

Homeowners who were either too greedy or preyed upon by predatory lenders started to get foreclosed on and the banks who invested in these subprime mortgage-backed securities started to go bankrupt.

Thus the need for a bailout which is supposed to allow the U.S. government to buy these subprime securities from banks and take on the risk.

The bailout is supposed to give money back to the banks to free up their assets so they can start lending again. You see, when the banks' cash reserves are tied up with non-performing assets, they can't make new loans. Thus there is an ongoing credit freeze. No one can borrow as easily from banks for their consumer purchases. The whole economy goes to the toilet cuz no one can buy or sell anything.

So that's where we are now.

The government (taxpayers) will be the ones left holding the bag because of these greedy homeowners, banks, and lenders.

How do Fannie Mae and Freddie Mac come into the equation?

Fannie and Freddie are government sponsored, stockholder owned corporations that guaranteed bank loans. Basically they tell banks to lend to people and not worry because they have their backs. Fannie and Freddie are the companies that package these mortgages into exotic securities and sell them to the secondary mortgage market (purchased by investment banks and insurance companies). They were the ones supposedly holding the bag when the ♥♥♥♥♥ hits the fan.

They failed and the U.S. government had to take them over.

Do we need the bailout? Yes. It's a bitter pill but otherwise the WORLD economy crashes.

Will the bailout work? We don't know.

Will this take a while to sort out? Yes.

This post should enlighten you on why Obama is now leading in the polls over McCain. Obama, as a Democrat, is for more government regulation. McCain, a Republican, is for government deregulation.

Deregulation is what caused the crisis. Hopefully now people can get a better idea in making an informed decision come November.

By the way, McCain also wants to privatize Social Security and Healthcare. Hmm... Think about it.

[Still Growing]

Originally Posted by fellowtraveler

Thanks for both posts, Tim, although I haven't "beloved" my government since JFK was killed.

If it all goes to hell, I might have to postpone my spiritual progression - there are plenty of fat squirrels in the sideyard every morning...

Ironic you should say that Fellow Traveler. JFK spoke out against the fed and was only President to ever print USD without backing from the current Fed. Again, very ironic.

[fellowtraveler]

Originally Posted by tycoondreamer

You have the basics down. It's people who can't afford their mortgages and are getting foreclosed on that are causing the problems. There are other things involved too.

Here are some components of the meltdown:

1. Subprime mortgages - these are mortgages that are granted to individuals with poor credit rating. Predatory lenders make their money when home buyers borrow. So they lend and lend with little regard as to who can pay. Some of these mortgages don't even require you to state your income or assets. Basically you can buy a house even if you don't have a job to pay for it.

2. ARM (Adjustable Rate Mortgages) - these mortgages have a low introductory rate like 2% for the first 3 years. After the 3 years, the rate shoots up to whatever the going rate is. The problem with this is that borrowers think they can afford the payments because the payments in the first few years are so low.

3. Overheated Housing Market - Because it was so easy to borrow money, home prices shot through the roof. There were way more buyers than sellers and home prices were doubling and tripling for no fundamental reason except hype. It's almost like a Ponzi Scheme. Someone was left holding the bag when the market cooled.

4. The Glass-Steagall Act - A bill passed in 1933 that created a wall between commercial banks and investment banks. Commercial banks are your friendly neighborhood retail banks that lend money for cars, homes, appliances, etc. Investment banks are banks that invest in securities and other high-risk, exotic investments.

The Act was designed to protect John Q Public's deposits from being at risk in investments and instead was supposed to be used for safer, more conventional loans.

The Gramm-Leach-Blilley Act of 1999 repealed provisions of the G-S Act. This is why McCain is in trouble because Gramm's a Republican and is now serving as one of McCain's Campaign advisors.

"The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities." - Wikipedia

You see, banks can package together a bunch of their loans into one security and sell it off to another bank. Before the G-L-B Act of 1999, banks couldn't invest in these types of securities. They're considered exotics. But Gramm pushed for the repeal and banks were then able to function as an investment bank.

That's when the trouble started.

Homeowners who were either too greedy or preyed upon by predatory lenders started to get foreclosed on and the banks who invested in these subprime mortgage-backed securities started to go bankrupt.

Thus the need for a bailout which is supposed to allow the U.S. government to buy these subprime securities from banks and take on the risk.

The bailout is supposed to give money back to the banks to free up their assets so they can start lending again. You see, when the banks' cash reserves are tied up with non-performing assets, they can't make new loans. Thus there is an ongoing credit freeze. No one can borrow as easily from banks for their consumer purchases. The whole economy goes to the toilet cuz no one can buy or sell anything.

So that's where we are now.

The government (taxpayers) will be the ones left holding the bag because of these greedy homeowners, banks, and lenders.

How do Fannie Mae and Freddie Mac come into the equation?

Fannie and Freddie are government sponsored, stockholder owned corporations that guaranteed bank loans. Basically they tell banks to lend to people and not worry because they have their backs. Fannie and Freddie are the companies that package these mortgages into exotic securities and sell them to the secondary mortgage market (purchased by investment banks and insurance companies). They were the ones supposedly holding the bag when the ♥♥♥♥♥ hits the fan.

They failed and the U.S. government had to take them over.

Do we need the bailout? Yes. It's a bitter pill but otherwise the WORLD economy crashes.

Will the bailout work? We don't know.

Will this take a while to sort out? Yes.

This post should enlighten you on why Obama is now leading in the polls over McCain. Obama, as a Democrat, is for more government regulation. McCain, a Republican, is for government deregulation.

Deregulation is what caused the crisis. Hopefully now people can get a better idea in making an informed decision come November.

By the way, McCain also wants to privatize Social Security and Healthcare. Hmm... Think about it.

Thanks, that was a lot of work for you - very helpful.

I do see that there's blame to spare for many parties - they built a lot of McMansions around here that people just had to have but couldn't afford.

The Republicans seem so contradictory and deceptive...here's the biggest socialist action ever and guess who's touting it.

One writer I saw today called the system "upside down" socialism. Doesn't seem to work very well for most of us.

[fellowtraveler]

Originally Posted by Still Growing

Ironic you should say that Fellow Traveler. JFK spoke out against the fed and was only President to ever print USD without backing from the current Fed. Again, very ironic.

Ah, I wonder if my Senator Arlen Spector knows about that, lol (Magic Bullet man).

Ironic indeed. Unfortunately some are saying Obama may eventually have more in common with JFK than he'd like. The man's got guts, at least.

[Still Growing]

Originally Posted by fellowtraveler

Ah, I wonder if my Senator Arlen Spector knows about that, lol (Magic Bullet man).

Ironic indeed. Unfortunately some are saying Obama may eventually have more in common with JFK than he'd like. The man's got guts, at least.

Obama is one of the following:
1. Has no idea how the US operates and is just naieve.
2. Knows how the US operates and plans to go along with those in power
3. Knows how the US operates and is planning to decieve those in power once he's in office.

I hope its #3 . JFK paid for #3 with his life. Would you do the same? Would Obama? I know McCain would not.