So I was watching a dateline special last night about the financial crisis that we're in right now. Much of it was explaining how the problem arised in simple terms, but some of it included very real stories of people involved in it. For those of you who are unfamiliar with how the collapse of our economy came to be, here's a quick run down:- First, lending companies started loaning money to people who couldn't afford the loans they were given. People then used the money to buy houses they couldn't afford.
- Many loans were grouped together, creating investments (bonds) that could be traded on the market. These loans had high rates of return and they were (falsey) rated very safe by rating institutes (like S & P).
- Big companies began buying these bonds in bulk because they seemed to be risk-free, money-making investments.
- Housing prices rose and more and more people started buying houses at prices they couldn't afford by taking out loans they couldn't pay back.
- Eventually, peopled started defaulting on their loans. This meant that lenders weren't getting their money back and all those bonds became worthless.
- People were evicted from their homes, lenders went out of business, and big companies that bought the bonds lost tons of money.
- Executives walked off with big bonuses before their companies toppled to the ground.
It was painful to watch interviews with "victims" of the mortgage crisis. They really think that they've been wronged, although in reality they were living off money they didn't have in the first place. Of course, this is easy to say coming from someone blogging in his comfortable home. But the truth is, America was living in an illusion of wealth for a few years.
Though the crisis is ultimately due to the greed and irresponsibility of big companies, in many ways it was the loaners and lenders that gave them the match to light the fire.
What do you think?
Yeah... I kept watching the news yesterday and it was all about the proposed way to deal with toxic assets.
ReplyDeleteAnd you are a nerd. :)
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ReplyDeleteI don't think any one really expected another bubble after the dotcom bubble had burst. Normally, there are these bubbles that occur and then people are tight with their money and then after a decade or so start spending again.
ReplyDeleteDo you realize that our savings rate and the amount we save are both negative? This is why this crisis had occurred. There are many people who cannot afford to take a loan out on houses, but they do so anyways. I feel like yes it is the companies fault, but it is also the consumer's fault. We need to know what we are getting ourselves into since the mortgage is probably our biggest debt in our life. A house is a huge deal; if you don't have the money for a huge house, build up to it. People are just greedy and want everything.
Perhaps it's just me, but my parents have been really big on saving money and not spending when I don't have the money for it. I feel there is no excuse for this bubble and those that got screwed by it, yes it sucks, but life goes on, deal with it.
And this is why I disagree with part of the stimulus package. People just need to spend what they have, nothing more. Unfortunately, the endless pursuit of the suburban "American dream" replete with white picket fence... yeaaaah, people want that too much. I also blame housing/lending policies... ewww subprime mortgages...
ReplyDeleteIt's really sad how these events have been allowed to take their course and now here we are. I feel that it's not my position to point a finger at someone (or some group) and say they caused all this, but the fact that people should take some responsibility and blame. Economy is the best example to see cause and effect, yet people refuse to understand how they themselves can affect it as well as feel the effects.
ReplyDeleteI just hope that we can get out of this with the knowledge of making decisions and hopefully a better future.