The lowdown on this economic messFollow

Since this board is seemingly crawling with uninformed morons, someone needs to explain how this economic debacle started. President Bush explained it somewhat tonight, but since so many people have blind hatred towards him they probably didn't pay any attention or didn't believe him for some reason.

The origin of this crisis started in 1999 when President Clinton(although it was a republican congress) signed in a bill that gave Freddie Mac and Fannie Mae government backing. The government did this because of the democrats idea that anyone and everyone should be able to own a home. By giving them this backing, the government allowed Freddie and Fannie to buy up too much debt. Essentially it gave Freddie and Fannie a bottomless wallet.

Since 1999 creditors (banks) have been loaning money to more and more people regardless of risk since Freddie and Fannie were buying up debt regardless of risk. It caused a feeding frenzy among creditors. It created competition amongst banks to keep up with one another by loaning money and then selling the "paper" (securities) to Fannie and Freddie. This loaning frenzy snowballed throughout the next few years into a situation where lenders were loaning to just about everyone who walked through the doors (sub-prime mortgages).

Fannie and Freddie's business was to buy up the debt and package it into bonds and securities that they would then sell to financial companies (investment banks) like Lehman Brother's Goldman Sachs Merril Lynch etc. The individual mortgages were mixed and matched into expensive bond and security packages containing multiple and fractions of individual mortgages and sold to these large investment banks who then in turn traded and sold them all over the world.

As long as real-estate continued to gain value these bonds and securities make lots of money, since if one of the individual debtors ( a homeowner or small business) can't pay the loan the banks can foreclose on the property and then sell it for more than they lent. However, since real-estate has taken a downturn recently if someone defaults on a loan the banks would lose money on a property if they have to foreclose.

What is occuring now, essentially, is all these millions of bonds, which contain several different individual mortgages, and are scattered throughout the worlds economy are impossible to sell (and thus worthless) because nobody knows exactly which mortgages are packaged within their bonds. This has caused a mad scramble for cash by banks to try and cover their potential losses. Since they need cash they obviously will not be loaning money in the near future.

The bill proposed by Bush (which is very rough and not very good right now in my opinion) would put up 700 billion dollars in cash to allow banks to continue to loan money to people wanting to start businesses, buy cars, go to college, I.E allow the economy to still run. The 700 billion is equivalent to roughly 5% of the money loaned out throughout the economy, and 5% is considered to be a fair estimate of the percentage of peoeple who would not pay their debts.

A common misconception is that this 700 billion is just goin down the drain. THis is totally false, it is actually very possible for the government to turna profit through all this mess. What the government would be doing is buying up all this debt (which corresponds to actual properties and assets IE people running businesses or living in houses) The government would be doing what no private company or power could do which is come up with this cash and weather the panic-storm.

When the government does this the economy will resume, and hopefully in a few years the government would be holding all the debt in a normal market. Essentially they will be able to get securities for a very cheap price now and then sell them for a more normal price down the road.

I'd like someone else to do it, frankly.

Oh, & welcome to the Asylum, GFY!

I'm not going to pretend to be an expert on matters economic. Getting in to the decades of changes to regulation, who proposed them, who signed them, etc., would be far too gbaji-esque for me and completely out of character.

What I can say is that the following sentence makes absolutely no f'ucking sense at all...

Congratulations.

Let's just start with this, because every single sentence in that paragraph is false.

I don't know much how much research you've put into this, but my guesstimate would be that it's a c&p from a right-wing blog.

The bill the Clinton signed in 1999 was a Bill put forward by the Republican Congress with a veto-proof majority. It stemmed from the Republicans, and Clinton had zero saying in its proposing or drafting.

Second, the bill had nothing to do with "giving Freddie and Fanny government backing". This is an outright lie. The Bill was a repeal of the Glass-Steagall Act, a law that forced separation between investment and commercial banking. This bill had absolutely nothing to do with "Democratic ideal of giving everyone a home", and everything to do with the Republican ideal of allowing rich lobby groups to get even richer.

The rest of your post is as misleading and riddled with factual errors as the start of it, and if you can't even get the simple, straightforward facts straight, you don't have much hope of understanding the complex systems in which they operate.

Pwned.

... Ok, which one of you jerks is ******** with the proxy servers. It's not funny!