Sep 29 2008
The Recap on Our Current Economic Status
For those of you hoping to catch up on this whole economic situation or if you’ve been asleep for the past year or two or if you haven’t cared about the US economy until you heard both McCain and Obama say absolutely nothing about the current situation in the debate and the fact that even the experts’ only real idea is “hey, maybe we should throw a ridiculous amount of money at this thing and hope it goes away”…whichever slot you fall into, here’s a very slim and understandable summary:
I guy (maybe you) goes to his local bank and gets a loan to buy his house at an interest rate of 6% and he leaves happy that he got such a good rate and is not thinking about whether or not he can pay the loan back, that’s what the bank is for — they are supposed to be the ones deciding that. Well, the guy behind the desk who gave him the loan gets paid when he gives people loans so the more and bigger loans he gives, the better off he is and the more he gets paid. Already seems like a slippery situation. Let’s make it even more slippery…the bank then sells the loan to someone else who will take it for 5% and then they sell it to someone else who will take 4%. Now you have three financial institutions who are utterly relying on this one random guy to come through with his payments. If he fails to pay, all three businesses default the loan and the house the random guy buys is foreclosed. If they’re lucky, they sell it quickly for half it’s real value and recover something but mostly they just lose and losing is not what businesses (especially banks) are supposed to do in a healthy economy.
Now multiply that by a really big number of random guys who come into banks to get home loans and you find yourself in a sitation which we are currently head over heels.
But have no fear, $700 billion is about to come flying in from over the hills and as a result we should be set for the next 5-10 years for the most part. If we haven’t hit the bottom and started rebounding by then…well maybe our silent presidential candidates would have been silent for good reason.
