while surfing aljazeera.net there was an interesting poll of “do u think u know enough aobut the economic crisis?”. Of course around 90% said no which is very expected. Even though I am in USA, and interested in knowing about this crisis, unfortunately, whoever talks about it, doesn’t talk about how it happened and why it is affecting everybody. They only talk like u know everything already. They mentioned the “buy out” bail the congress passed lately, but never went into details of what that bail means.
i gathered some info from here and there, but i wasn’t able to find a good site to explain it fully. wikipedia got some good info though.
here is what i gathered hoping people might benefit from this and hoping if others know more things to share it with us
what caused this problem is the real estate bubble in the US. The bubble basically means that people start investing their money in real estate too much till one point it become worth less than what it actually worth. For example u might buy a house for 100K thinking that this is awesome price, but in fact it is not worth it and it is only expensive because the demand is high not because it worth a lot. so after a while people realize that houses are less that what they r sold for, so everyone suddenly stops buying houses and the demand becomes really low which makes the houses prices really low as well. Whoever bought a house already is now in trouble. of course i am talking about people who trade in houses not to live in them.
The banks give a mortgage plan to people to buy houses by paying a monthly fee instead of buying it all at once. When this bubble happened, many bought houses this way (by loan), and when the prices went down suddenly many stopped being able to pay the monthly fee. The banks ofcourse take over the house. Now theoritically, the bank didn’t lose anything since it was the house, but on reality the bank is not equipped to invest in the house itself, so having the house is worse than the monthly payments since banks need liquid money fast rather than assets.
Now this what caused the Lehmans bank to go bankrupt and another bank was bought by a bigger one. Now why the crisis escalated, because all the banks that was getting loan payments from lehmans can’t do that now so they r in trouble for lending money to the lehmans. Addiontally people are easily scared and this bankrucy scared many investors, and when some investors start pulling their money from the stock market that means demand is lower so the stock goes down which means additional people pull their money out, and the chain reaction starts.
That what happened couple of decades ago, i don’t know details of that crisis, but i know it was the worst and that’s when the “grapes of warth” story events happened. It was a similar issue, something went wrong which made some stocks go down and everybody panicked and pull out their money which destoryed many business and many people became unemployed.
ok, now the bail out plan. as i understood that the congress want to pass a decision to BUY the bad loans that the banks had taken because they were stupid. and the congress hope that after a while, those loans will be worth more so they will actually profit from this. the main issue is that the bail out plan helps the investment corporations, not the normal non-investing person. some are with and some are against. anyway it was passed recently after small alterations, not sure what they r.
ok that’s everything i know if any knows more, please enlighten us.
Muhammad add some good information, he mentioned that after the banks got the hit, they stopped loaning money to bussiness people. This move caused many bussiness to go bankrupt which escalated the problem further.
p.s: another reason why i am posting this because no one wrote a post in a while