Can someone explain the $700B bailout?

[City]

i don't understand how it happened. like what events/companies/banks/ect led to this happening? Why did Washington Mutual collapse? i cant find a nice summary online.

[lhrulz2007]

Due to lack of Regulation these investment banks, including WaMu, started giving mortgages to people who didn't really deserve. The banks would actually encourage lying about incomes for applicants, so they would qualify. So Billions of Dollars worth of loans were given, as subprime mortgages. These loans were not only given to people who couldn't afford them, but were given with interest rates that would skyrocket if a payment was missed or in some cases as soon as the mortgages were signed. So basically they have billions of dollars of loans that weren't repaid causing them to fail.

that's kind of the basic problem. Theres alot more to it, but that's what really started it all.

[adhara]

This link helped me understand some of the various terms floating out there and a little bit about how mortgages are related to the larger financial market

www.abs-cbnnews.com/business/09/26/08/what-subprime-dummies-guide-credit-crisis-lingo

[savemeimdtba]

Then they deserved to fail... I just don't see why the government should be helping them? Is there no such thing as consequences?

[adhara]

Sept 28, 2008 8:19:00 GMT -5 savemeimdtba said:

Then they deserved to fail... I just don't see why the government should be helping them? Is there no such thing as consequences?

unfortunately, yeah- most experts believe that they do need to be bailed out because there are some pretty bad consequences if nothing is done. These bad mortgages have affected banks' capital to the point where they've had to tighten lending standards, which makes it harder for consumers and businesses to get loans. So it's harder to get things like mortgages, car loans, student loans, and it's harder for businesses to borrow cash to expand operations, buy new equipment, payroll etc. And with the economy predicted to worsen, things aren't expected to get better on their own.

Of course, there's other questions about how the overall bailout plan will work (e.g., will there be better regulations, will it help home owners directly), how much it'll cost, and whether there are alternative solutions...

[FadedJade]

I don't really know the best way to explain it, but if they didn't do this, we'd be about 5 steps closer to a depression. No joke.

Another thing you have to remember here is how banks work. They 'loan' your money to other people, basically, which is why they pay you interest on savings accounts. You're 'loaning' them money to 'loan' to other people. So at this point, that's what it's digging into. Not only will some of these banks not be able to loan to deserving businesses, but they'll also reach a point where they can't even give people the money that is rightfully theirs.

[jolene102]

i think the bail out is crap. i'm glad the gov. shot it down today. i'm really tired of paying for the mistakes of others. people bought these homes, etc. knowing they could afford them and now the avage person has to pay to bail them out. why is it that the people who try to do the right thing have to pay for the dumb mistakes of others?

[adhara]

Sept 29, 2008 16:29:44 GMT -5 jolene102 said:

i think the bail out is crap. i'm glad the gov. shot it down today. i'm really tired of paying for the mistakes of others. people bought these homes, etc. knowing they could afford them and now the avage person has to pay to bail them out. why is it that the people who try to do the right thing have to pay for the dumb mistakes of others?

This whole economic crisis is not really the fault of homeowners with subprime mortgages though... most people if offered a loan to buy a house, would take it. And banks would put things in fine print that nobody ever reads, like what mike was saying about interest rates that would skyrocket if a payment was missed. These people just should never should have been offered a loan in the first place. Banks should be more knowledgable about these things than the people they're offering loans to.

But now it's more than a problem with banks and mortgages. There's not enough credit to go around. Businesses will be affected. Unemployment will rise. It's going to get worse...

I hate that we may have to bail out our financial institutions, because they were greedy and made stupid mistakes, and deserve what they're going through. But the sad thing is that it's not just the financial institutions who are going to be impacted if nothing is done- all of us are going to feel it. If not a bailout, I think some kind of substantial government intervention is necessary. This makes me really sad because I see many social programs and the like being cut/delayed in the future to make room for this massive spending... health care, education, infrastructure, energy...

[gogonutz]

A British economics professor had a good solution. Stop talking and thinking about crisis. Just ignore it's there. It'll take a couple weeks, but the stock market will restore itself cause people's faith will be restored. After all, it's more a psychological problem than a financial problem. Once the stock market will restore, banks will have a better position to get back on track. Of course financial input is necessary to patch up the holes, so to speak, but it will be much less of an intervention.

My own knowledge about all this isn't big enough to really understand it all, but what I know of money and the market, is that basically it exists of trust & faith. Because we all agree money has value, it has value, because we have faith that it will buy us what we need. Which makes it a psychological phenomenon. So I think, though his idea won't work in practice, in theory it sort of makes sense.

[lhrulz2007]

700 billion dollars in bad assets in the economy isn't going to go away by not talking about it. I hate having to bail out corruporations that were brought down by there own corruption and stupidity, but is necessary to make this severe economic crisis much less severe. Unfortunately nothing will pass in an election year, so the bailout is dead in the water.

[jolene102]

unfortunately you're all right, a bailout is necessary, but i still disagree with it. either way, it's the middle man like me who works hard and doesn't buy things or accept loans w/o being able to afford it in the first place that suffers both ways. i saved my money and now i can't even get my money out of the banks because of all this. it's just a bunch of crap!

gognutz does have a good point though. the stock market is based on trust and faith. when people start pulling money out it sends everything in a panic. if people just sit back and chill things will eventually go back up.

what goes down, must come up. and vice versa

[gogonutz]

Sept 29, 2008 19:38:41 GMT -5 lhrulz2007 said:

700 billion dollars in bad assets in the economy isn't going to go away by not talking about it. I hate having to bail out corruporations that were brought down by there own corruption and stupidity, but is necessary to make this severe economic crisis much less severe. Unfortunately nothing will pass in an election year, so the bailout is dead in the water.

I didn't (neither did that English dude) that the problem would go away. I think I even said a financial injection is necessary. But by tackling the psychological problem (he suggested ignoring, which only works in theory, as it's way too late for that anyway, and no one's powerful enough to keep that under the covers if it happens anyway), but government/businesses can create an atmosphere (or even an illusion of that) that things are going up, rebuilding trust.

Of course, the deep hole that is already here has to be filled, but it would be a step towards preventing the hole to get even deeper if trust would be restored, which isn't as hard as it seems.

[adhara]

jolene, you tried getting money from your bank account, and they wouldn't let you? I think you should still be able to get your money out of the banks, subject to your bank's daily withdrawal limits. In the case that your bank does fail, the government would probably facilitate the sale of the bank (like how all WaMu accounts became JPMorgan Chase accounts). And if that doesn't happen, the FDIC insures each account up to $100,000.

[jolene102]

they'll only let u take so much out in "cash". sure i can get a check, but what if i wanted to roll around on my money in bed like in the movies? my moeny. i worked hard for that and should be able to do so.