Now that you all have a clear understanding about the root causes and evolution of our current financial crisis, I would like you to complete the following two tasks in response to this post:
1. You have been asked to explain the financial crisis, the major banks involved, and the government's response to a group of aliens. In clear, concise, and simple English please compose a paragraph
that accomplishes this.
2. After watching the Frontline documentary, who - in your opinion - emerges as the biggest villain in this
story? Don't just post a name, but logically defend your answer.
-Ned-
9 comments:
The financial crisis that America's economy is currently facing can be explained easily enough. However understanding it is an entirely different matter. In a nutshell, major banks such as Bear Stearns have been giving loans and mortgages out to people that aren't able to pay it back. How a mortgage works, is the bank loans a certain ammount of money to someone so that they can make a down payment on a car or a house. The person then pays the bank back in small increments, plus interest. So if the bank were to loan me 100 dollars, then every month I would pay them 10 dollars, and I would continue to do this for about 12 months in order to fully pay the mortgage plus interest. In the past, in order to take out a loan or a mortgage on a house, a person would first have to prove that they had a job, and that they could make the monthly payments. However in more recent times, banks no longer require people to prove that they have a job or that they can pay off their mortage. This is commonly referred to as a "No Income No Asset Loan." The banks don't see this as a problem, because even if someone can't pay their mortgage, and the bank isn't recieving interest from the loans they gave out, they still make money on the value of houses. If the value of the house increases, and the owner can't make payments, then the bank sells the mortgage to another bank based on the value of the house. But if the value of a house decreases, and the owner still can't pay off the loan, then the bank ends up in trouble. So the crisis we are facing, is due to the great number of houses being built, the value of most houses goes down. If the value of houses goes down, then the bank can't sell the mortgage because no one else wants a mortgage on a house that's value isn't expected to go up. And if the owner still can't pay there loan off, then the bank is basically giving away free money that it won't get back. So now that you understand the crisis, you need to understand how we got here. One of the main banks involved in this situation is Bear Stearns. Bear Stearns bought so many of these mortgages, that they almost went broke. After the value of houses stopped increasing, the mortgages Bear Stearns owned became worthless. Once the housing market bubble burst, all kinds of financial disasters hit Wall St. Now who could be considered the villain in this situation? In my personal opinion, I believe it is Hank Paulson. My reasoning for this, is because I believe that it was his prejudiced decision to not save the Leman Brothers bank that put us in our current economic crisis. Paul G.
I think in my oppinion that the american people themselves are to blame. We consume and consume and we dont pay attention to our checks and balances.
I know this is a subject thats important but, im not gonna lie it was the most boring doc. and i probaly could have paid alittle better attention. [sorry for spelling errors.]
well if your an alien your in luck! im going to tell you about our finacial crisis. WHOO!!!
so heres the skinny,back in september, a bank called bear sterns started to lose their stocks. stocks are pieces of a company that people can buy to increase their money as the stocks increase in value. well, when their stocks started to decrease, they called in and said that they didnt know what was happening. the word got out to stock holders, and they started to lose all their clients. as this was happening, the CEO of the company went on television and said that they were not losing value, and the media was causing them to lose all of their clients. this had no effect, and they continued to lose clients and revenue. henry paulson noticed that they would need a bailout, or they would be shut down. he couldnt give the money to them directly, so he gave it to J.P. morgan to give to them. after this, ben bernake said that he would pay them 2$ a share for their stock. this came as a suprise to them, as their stock is usualy worth $15. after they sold out, they realised that AIG and other banks and insurance companies were losing revenue. this is due to sub-prime mortgages which basicaly means that people could take out a loan for a house without proof of iunsurance or income. the banks would then sell bundles of these mortgages to investors, and as long as the value of the house goes up there is no problem, but the buble burst, and everything crashed.. ben bernaky then called together 9 CEO's of major banks and made them accept $8 billion dollars in stock investments from the goverment. we dont know where this money is now.
in my opinion, the real badguys here are not only the bankers, but the errisponsible people who took out the loans.we cant pin it all on the bankers. i know that they exploited us for our vulnerablity and ignorance, but it is our personal responsibility to take initiative and learn before we loan.
1. Americans are capitalists. This is uncontested, and means that Americans want to keep their government and their market seperate. When major companies like Bear Sterns and Lehman Brothers go bankrupt or begin to announce, 'Hai guys! We're running out of money that we don't have!,' the American people generally think that the government would keep themselves out of it. However, the government began to buy the bad shares in the company to save it. The main fault of the failing companies lies with NINA loans, No Income No Asset, who most probably cannot be expected to pay.
2. The biggest villian, I think, is the banks who both agreed to bundle and sell the loans (any loans) and who started allowing the NINA loans.
Financial Meltdown, sounds familiar huh? well it happened before, its was called the "Great Depression". well it was bound to happen again and well it did. Bear Stearns was rumored to be losing money with their "Toxic Assets" although they claimed they were fine because thier former chair said so. altohugh the market had no confidence that bear stearns could pull themselves out of the debt. then the marketers thought why not lend money to another company and give bears stearns money what a great idea. my opinion not a good idea. with so many toxic assets a couple bucks won't do much but maybey cause more harm. anyways they went and gave money to jp morgan to give to bear stearns. eventually bear stearns sold all thier shares to jp morgan for $2 a piece. only TWO DOLLARS. the other marketers predicted that there was now no company too large not to fail. Thus the second and almost fatal crash in the system.
I believe the largest contributers to the meltdown were the banks. They wereamazingly greedy with their money and did many things that helped contribute to the death of the economy. They horded their money away as the economy collapsed around them. If they had been smarter with their money then this whole crisis may have been averted. But it is not their fault entirely, it is also the people who have taken loans with no intention of paying them back's fault as well. The banks ended up in debt, the people ended up in debt, and money lenders were not even asking for information.
After watching that delightful documentary, the best way for me to describe the stock market meltdown is by picturing Wall Street as 90210 high school.
Here is what happened a nasty rumor was started about Bear Sterns, that he was not trust worthy and so every one gossiped and wouldn’t invest in Bear Sterns and started yea know saying I don’t want be friends anymore give me my money back. So Bear Sterns was like oh I’m fine I have a ton of money saved but then it was like OMG!!! I’m broke!!! So then Bear Sterns called his good friend the Federal Reserve and they were like I cant give you any money because it against like the rules but then they had a brilliant idea to pass the money through another friend called J.P Morgan and so Bear was like yay money! But all the other banks were jealous and mad because that was a loop hole in the rules and so they all were angry! And then some other bankers got in trouble and the fed reverse was like we can’t give you any money it’s against the rules but then they were all like omg not fair you gave money to Bear Sterns! And then the stock market was falling and everyone was freaking out so they were like student government (aka: US government) we need help or else the economy will totally crash. So the student government is like oh no we are all going to be into trouble with the district so they were like ok ok, we will give you a ton of money and become stake holders in your company. And then everyone was happy except the tax payers.
That’s basically the stock market crash in a nutshell :]
The economic crisis happened when we did not bail out Lehman Brother because it caused a chain reaction. The government decided to bailout Bear Stearns and not to bailout Lehman Brothers. The chain reaction happened because of how many companies relied on the Lehman Brothers suffered witch caused the companies that relied on these campanies also suffered.
I think we should let businesses fail because that is what happens in capitalism.
Dear Paeshog,
1. What’s behind the financial market crisis? Dearest Paeshog, finance is composed of thousands of billions of people and banks who owe banks money, banks who owe other banks money, and those banks who owe people money who owe banks money who owe banks money. Management of this money is a series of banks who owe money who track all their debtors. Humans are consumers, and companies or banks are debtors. Why do we set up a trap like this for ourselves? If one large company or bank does well, it may be able to return an amount of debt, causing a domino effect that filters to the smaller business concerning repaying debt. In a way it forms a strong (theoretical) web over the country that holds it high enough to produce goods, insurance, banking, services, etc. to the people who consume to no end. This web takes a big chance, because if one bank falls and takes it’s debt with it, there are several banks who are inconvienced until their own deaths. If a big enough bank inconviences enough companies, banks, and people, the web will fall very quickly. And the web proceeded to fall since last spring when bank Bear Sterns started to lose their stocks. The media placed a nice role in all this, encouraging more clients to panic, withdraw their stocks, and run the bank dry. After Behr Sterns was dead and gone after several desperate (and unsuccessful) revival attempts, AIG and other banks and insurance companies started to lose revenue. This was due to the banks’ deals with American people who bought houses and were unable to pay mortgages back. (Faulty move on the people and the companies. Our morals were too determined to achieve the American dream.) Anyways, the financial Bubble burst, everything crashed, and people panicked.
2. After watching that documentary, the biggest villain, I think, is the media in some way for inflating the crisis past what was really happening, and before anyone could have a hand in helping it. I know several adults who conversed about pulling stocks and insurance after watching a the news one night. This would NOT have helped the banks any more.
But the government needs to stay out of American people’s problems. If all the kelp in the sea dies, the kelp-eating crab shall die, but the carnivorous sharks survive longer. Guess which group of people the sharks are in this illustration.
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