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The American Economy

This is a discussion on The American Economy within the General forums, part of the Caferacer.net Forums category; Wonder wtf is going on? Why a few people defaulting on bad loans is causing the American economy down the shitter? Listen to this: http://www.npr.org/templates/story/s...oryId=89338743 ...

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  1. #1
    Senior Member UngaWunga's Avatar
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    The American Economy

    Wonder wtf is going on? Why a few people defaulting on bad loans is causing the American economy down the shitter?

    Listen to this:
    http://www.npr.org/templates/story/s...oryId=89338743

    39 minutes long, but you'll thank me later. Download it and listen to it instead of watching TV tonight.

    I'm torn between being pissed off and wondering how I can get my hand in the cookie jar like the lucky few....





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    Senior Member UngaWunga's Avatar
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  3. #3
    rat
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    Simple answer...

    the current world economy lives and dies on debt.

    If the populace is in debt, the lenders are "rich", they can leverage your debt. if that debt vanishes, we're f**ked.

    Same reason you having 7 billion dollars under your mattress doesn't "help the economy"...but if you have it in the bank, it does.

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  5. #4
    Senior Member UngaWunga's Avatar
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    No, really. Listen to it. Its very enlightening. Its the 4/3/2008 episode. Might be uploaded yet, but should be by this evening.





  6. #5
    Senior Member Geeto67's Avatar
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    I can't listen to those links at work but I work in a related field and I can offer some insight as to why subprime is dragging the economy.

    It isn't the default that is bad it is the loans themselves, they are bad news. Lets start at the smallest scale (simplified for arguments sake)....

    Joe Q goes into a bank and gets a loan. Once he is approved the bank sells the loan short (while still making a profit) to an investment house which buys and sells these types of securities. Then this investment house bundles the loan with many like it and sells it to something like a hedge fund or a brokerage house like JP morgan or Bear Stearns who sell it to their clients.

    Now, say Joe Q gets turned down by the bank so he goes to fly-by-night loans and gets a subprime loan (because he can't afford the standard interest rate). After he gets his loan the subprime company turns around and sells the loan to a bank and the whole cycle above starts again.

    Now say an event triggers a default on the subprime loans. Well all of a sudden the bundles that have subprime loans are worth a lot less than they were originally sold for to the hedge funds, brokerage houses, etc....

    It wouldn't seem so bad if we were talking about a few rich folks losing money (serves 'em right eh) but we are talking about major companies that invested their pensions, states that have invested their payrolls, etc....into something whose value just tanked.

    Plus because subprime loans were harder to spot and there were so many of them they ended up in a lot of investment portfolios that would normally be adverse to this kind of risk.

    so that is how the economy takes a collective shit....in a nutshell.


    Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.
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  7. #6
    Senior Member UngaWunga's Avatar
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    Ooohhh its much more that subprime loans. Its the unregulated insurance that was backing up those loans. Listen to it tonight.





  8. #7
    Senior Member UngaWunga's Avatar
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    And it has nothing to do with the public going to cheapo mortgage lenders! Listen!

    The problem is all the deregulation that has been happening over the past 10 years.





  9. #8
    Senior Member cseger1's Avatar
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    I just listened to it. That guy explained the problems very well. IThanks for posting it Unga. Those banker fuckers should be strung up. Instead they'll $100 million severances.

  10. #9
    Senior Member Geeto67's Avatar
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    listening to it on a friend's computer at work - you are right I left out a lot because I didn't think this group saavy enough.

    Greenburger is actually simplifying a lot too.

    Deregulation has been going on for the last 70 years (since the day after the regulations and enforcing agencies have been set up). the last 10 years it has been accelerated.

    The cheapo subprime lenders are part of it in so much as it was an accelerating trigger event that has exposed the abuses of unregulated securities.
    Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.
    - Samuel Beckett
    A tool is just an opportunity with a handle
    - Kevin Kelly

  11. #10
    leo
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    "I didn't think this group savvy enough" ? Damn, it's not enough the economy is in the shitter, now I'm being condescended to.

    cheers-leo

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