please help me understand whats happening in the market and the world economy?

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I live with my parents and my brother and his family. In comparison to many were very below the poverty line, but we manage. My family are of the Asian decent, 1st generation. What this tells you is that my parents take the bus to were they gots to go. If you tell them that FREDDY AND FANNIE are going under, they’ll probably reply (not in english) It’s the dam gangs around here. You need to bring flowers to show respect.
I sometimes laugh mostly walk away in..I just walk away. The reason for my little intro is to give an understanding of the level of coherence; a property of mental/cognitive state to which I understand what is going on in the market and world economy. I’m not looking for a debate but easy laymen words to help me understand the impact of this “CASH FLOW” crises.

Of my 1st generation understanding

What I’ve been lead to belief is that during the late 90’s there existed a housing bubble. Folks were buying up property all the way to the north pole. Well that’s what my brother said he’ll buy for his wife. The bubble has popped and the repercussion is what’s happening in the market as well as the world economy in terms of

institutions don’t want to loan anyone “money” not even to each other.
Folks that tasted the mortgage crunch couldn’t support the habit. Many and I say Many Many did I mention Many loans went south. South enough to cause Merrill Lynch (financial management and advisory) Hanged by noon tomorrow. Bearsterns starved to death.
citigroup is soon to be the village people. Wachovia hummm…..soon tobe Wa Cho’s. Freddie and Fannie went up the hill to fetch a pail of agua they both fell down with an Awee on their crown cause their uncle is wealthy.com

1 Comment
  1. Reply
    simplicitus
    February 9, 2011 at 10:13 pm

    Pretty much. There are two elements to add:

    1. Most of the loans did not go south. Only mortgages went south and only a fairly small percentage of those went south. But banks make only a little money on each loan and get rich because of the large numbers of loans, so “a fairly small percentage” of a large number is still large enough to cause them major damage.

    2. Loans are what makes the economy go ’round. Not just the mortgages, auto loans, and credit cards for individuals, but also for businesses.

    A factory has to buy the materials and pay its workers before it can deliver the goods and it has to deliver the goods before it gets paid. so factories usually borrow money from the banks to pay for the costs of production and pay the banks back when the payment for the goods come in.

    (In the old days, this was even more true of farmers – borrowing to pay for seed, fertilizer, fuel, etc. and either paying the loan back or going broke depending on the weather, the market, etc.)

    So if banks stop giving out loans, not only do people find it harder to buy stuff (affecting the construction industry, etc.) and car (affecting the auto industry, etc.) but all the other business activities also become more expensive , contributing to inflation, etc.

    So this is certainly the fault of the financial industry for getting us into this hole, but innocent or guilty, we are all going to be affected by it. And if we are affected, so is the entire world. – the U.S. is the world’s biggest customer. When your biggest customer stops buying, you are in trouble.

    That’s the one good reason for some sort of bailout.

    Whether the bailout originally proposed by the Bush administration is the right one is another matter entirely. With its giving all that power to Treasury Secretary Paulson, who blew it in the first place, it clearly isn’t. Just how much better the one being hammered out in Congress is, I can’t say.

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