.. Posted February 25, 2009 Report Share Posted February 25, 2009 Yup, that is a much better analogy. Cheers, SD Link to comment Share on other sites More sharing options...
ThaiHome Posted February 25, 2009 Report Share Posted February 25, 2009 A very good explaination was done by CNBC called the "House of Cards". It tells the storey from the perspective of home buyers, mortgage brokers, investment bankers and investors. Link The money did exist, and was mostly spent by normal people that were taking the growing equity out of their houses and buying stuff, which in turn put more money into the economy allowing more people to want to buy houses, causing the prices to up. Of course, with something like 20% of them having mortgages they technically did not qualify for, made the crash inevitable. Classic bubble. TH Link to comment Share on other sites More sharing options...
Lord Toad Posted February 25, 2009 Report Share Posted February 25, 2009 In simple terms successive western governments allowed banks to effectively print money: they created money from dodgy instruments (sub prime). This fuelled spiralling inflation of property and everybody piled in, including those who could not afford the property; all believing they would sell for more in 12 months. When people started defaulting on the home loans the value of the dodgy instruments crashed as nobody would buy them. Suddenly there was no more money to fund the upward spiral but worse was to follow. Many banks had been lending long say 20 years and borrowing short say 1 - 3 years so when their borrowing came up for renewal nobody wanted to know as the loan guarantees were those dodgy instruments, or loans to people who could not afford them. Now theoretically all that money should have gone into the economy and it would reappear somewhere else but instead of the money being in the US, UK or Europe it was in China (among others). That is why everybody is being nice to the Chinese and Japs because they have all our money, but of course if they do not give it back and the Western World stays in deep recession then they stay there with us. I have always felt a quick very deep recession that will be all over in 5 years would be better than the mass of government spending, now being proposed, which will massively increase national debt: that will keep is a less deep but longer recession Link to comment Share on other sites More sharing options...
zzzz Posted February 25, 2009 Report Share Posted February 25, 2009 Could someone place explain to me in real simple terms. In regards to this world wide economic meltdown. Where did all the money go? Money went to people who bought low and sold high stocks and real estate and to people who borrowed money and defaulted. Money left those who bought high and sold low stocks and real estate and those who gave out loans to people that defaulted. It's the same ol' same ol.' Link to comment Share on other sites More sharing options...
BelgianBoy Posted February 25, 2009 Report Share Posted February 25, 2009 Ben Lomond Madoff Victim, 90, Returns To Work ....With house payments and medical bills piling up, Theirmann said he had no choice but to go back to work for $10 an hour. WTF, 90 yo and still paying for a house ??? fundamentally wrong IMO. BB Link to comment Share on other sites More sharing options...
Bangkoktraveler Posted February 25, 2009 Report Share Posted February 25, 2009 A person should be happy if they got a pot to piss into. Annonomyous. Link to comment Share on other sites More sharing options...
BelgianBoy Posted February 25, 2009 Report Share Posted February 25, 2009 Annonomyous.[/b][/i] Annonomyous ? Greek philosopher ? BB Link to comment Share on other sites More sharing options...
ThaiHome Posted February 25, 2009 Report Share Posted February 25, 2009 I have never heard that the Chinese were big on western commercial paper. Can you support that statement? I know they hold a bunch of US treasuries, but those have nothing to do with the current situation (other then the US issuing more to support the banks to try and get out this mess). Seems to me the money, in the form of the principal that was loaned out, did go into the economy, feeding the bubble, and the debt is mainly held by thousands of institutional investors that thought they were getting BBB+ or better investment grade paper. TH Link to comment Share on other sites More sharing options...
HeartThais Posted February 25, 2009 Report Share Posted February 25, 2009 My understanding is as follows: China is a big purchaser of Fannie and Freddie paper. Fannie and Freddie themselves were big owners of the AAA tranches of subprime CDOs. They are less active but are buyers of highest-rated and most liquid corporate bonds and equity shares but usually when they can't buy enough treasuries. I would guess the ratio of US treasuries to corporate debt (not including GSE debt) might be something like 60:1. Link to comment Share on other sites More sharing options...
Lord Toad Posted February 25, 2009 Report Share Posted February 25, 2009 The balance of trade deficit resulting in huge foreign exchange reserves. The housing bubble fueled funny money which went into consumer goods largely imported from China! Link to comment Share on other sites More sharing options...
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