I do not understand the financial crisis at all?

Can you tell me in decent, understandable words what's up? I haven't taken economy yet, and no nothing of it. I don't really even understand how the Great Depression occurred either.. I just know that stocks went down and ppl pulled all the money out of banks, but how does that all affect other or all the people? I don't know anything. Also where do i look, say, on tv to get updated on political facts, I'm a young girl lost in my own world, who shouldn't be. Ignorant.I do not understand the financial crisis at all?
What Chris J said is very true and this is exactly what happened. The details are these: There are usually laws prohibiting people from borrowing more money than they can afford to repay. During the sub-prime mortgage boom a couple of years ago, the federal government made special exceptions to these laws so that people with bad credit, people with little money, and other bad economic situations could get around these laws and buy houses they couldn't afford. This is called predatory lending and the government not only allowed it, but they facilitated it. Now these people that bought houses they knew they couldn't afford are going into foreclosure (duh), the banks that loaned this money to these idiots have lost millions (double duh), which is reflected in the stock market and the resultant economic crisis we are in (triple, super duh). This was a foreseeable event, I worked as mortgage broker during the boom and we all knew it was coming. Unfortunately, people like you and the rest of the American public not borrowing money up to their eyeballs were unaware of this and yet still have to deal with the consequences. I'm glad you asked this question, more young people should be asking questions like this. It may prevent it from happening again in the future.
stocks went down causing many people to lose their money. With many jobs being outsourced and a bad economy Bush raised the idea to get $700 billion to use to help people in dept and to creat more jobs and use the tax dollars to pay for those people doing the jobs.I do not understand the financial crisis at all?


long story short



1. irresponsible people got mortgages they couldn't afford



2. banks knew those people couldn't afford them



3. banks gave them mortgages anyway b/c they could peddle them off somewhere else



4. banks now can't peddle off any more mortgages b/c the day of reckoning has occurred and nobody is buying investment securities that are backed by junk mortgages...



5. banks don't trust each other and don't trust consumers as much either


whats it matter.. its just everyone panicing.. if you didnt have tv or internet you wouldnt realize anything is goin onI do not understand the financial crisis at all?
Banks give loans, expecting to receive payments. People don't make payments, bank starts losing money, people sell stocks (the money capital the banks have) because if bank loses money then stockholders lose money, therefore bank loses even more money, enough of that and bank goes under. People arent entirely to blame though cause alot of the loans were variable rate, start at 3% and then the bank changes it to 12% or more down the road, and the people cant afford the higher payments. Always a good idea to stick with fixed rate loans.



So then when people can't pay house mortgage, bank takes ownership of the house by default. Normally the bank can sell the house and profit from the deal, but so many people can't afford their mortgage that way more houses are being taken and put on the market than can be sold, therefore housing prices drop and bank doesnt get their money back. And it keeps going from there into a vicious economic downfall.
Don't feel bad, neither does McCain or Palin.
Someone got the great idea to give mortgages to people who lacked the means to keep up on their payments. The banks that gave out the loans to those people, then sold thier debt (yes, you can do that) to larger banks.



Then, a bunch those people who shoudn't have been given loans in the first place, defaulted. The smaller banks were spared, they'd already pawned these debts off on larger banks, and those larger banks suddenly didn't have all the assets they thought they did.



Imagine you lent $5 to four different friends; you now have assets equalling $20. You ask someone else to loan you $20, because you'll get it back to them. Then all four of your friends say they aren't going to pay you back, then the guy who loaned you $20 decides he wants his and you've already spent the money.



You're now out $40. This is how international finance works, and yes, it is that dumb.
Okay... in the simplist terms....

Great Depression- the average people saw that the rich people played the stock market. The average people started buying stock (its part ownership. you pay money to a new company at the begining and as years go on, you hopefully make a good profit off of your part ownership) The rich people who knew what they were doing pulled out right before the crash. When the stock market did crash (this day is known as "black tuesday") The rich and average people, who sometimes had all of their money put into this stock, lost everything. This is where the saying "the rich got richer and the poor got poorer" comes from. (the rich ones being the ones who pulled out before the crash.)



A few days ago- The stock market "crashed" because banks are being too nice. They are letting people who can't afford houses get loans. then they dont pay them back... making the bank loose money, eventually causing the stock market to crash.



YES! this effects the whole economy.. because your banks are struggling and loosing money... you will too.



try your local news. they keep it in easier terms than CNN or FOX.



You are still young. dont worry to much about it. hope i helped!
Let me put this in simple terms. Clinton promoted and passed regulations that made banks provide dirt cheap housing loans to people who generally could not afford a home. The idea was to get more people into their own homes. Banks had to provide 0 down payment, sub prime rate loans to previously unqualified people. Fast forward to 2003. Bush tried to get an overhaul of Fannie and Freddie stating that they were mistating earnings and were poorly run. He and actually John McCain too, stating government regulation was need for these two companies that ran 75% of the home mortgages. Democrats like Barnie Frank and Dodd fought it feverishly saying there were no signs of trouble and this was a dumb idea. The sweeping changes were shot down. Oddly now we can see that Dodd was the biggest recipient of Freddie and Fanny campaign contributions. Second, (no surprise) was OBama. Not only that, but he now has one of the head Freddie Fanny people heading his campaign. Anyway, back to topic. Bush tried to fix Freddy and Fanny, but it was shot down. So now after, the dot.com bubble bursting, 9/11, war in the middle east, Katrina, the housing bubble bursting, gas prices, and hurricane Ike the economy has been hit hard. Part of what happened, was, bank have to keep so much liquidity/assets in order to loan money. So when interest rates went up along with everything else, these people who got in under the sub prime lending antics started failing to make payments. Houses get forclosed. So the banks own the homes but because of regulations, can't use their expected value as part of their "assets". So essentially they can only loan a percentage of their total assets, so they are sitting on all of these assets worth 0 on the books, and they are not getting the previous loan payments as before. So they banks had to slowly stop lending out so much money. So when people can't get loans for cars, boats, houses, to go to school, it puts a damper on the economy. And the economy kepts pushing everything down, and down and it keeps going on and on in a circle. ....So Bush seeing this happening wanted to save the economy by supplimenting it with a bunch of cash. This will give the banks money to loan out and get the bad foreclosures off their books. I also think it is a way to keep foreign investors from swooping in and buying up our resources and companies.

In an interview, Clinton stated it was the Democrats not willing to make the Bush changes that caused the issue. Not sure if that was because he felt like his policies are under question, or if he really believes the Dems did not take enough action.
The great depression was caused by bank failure and stock market failure and two world wars. the difference in this time is that the banks have made lousy loans to people who could not pay them back, they were made by government law to give out these loans during the clinton administration with nothing down and so people took out loans on House's and when you have a home after time you get equity in the home so you get a second morage to buy a car the price of the rate of the house goes up the interest rate goes up you pay a little more and you have a new car. You continue to make your payments on house and car and take out another loan on a credit card for 1000.00 at 33% inters, your still not satisfied so you buy more things on credit making all the small payments. Over time you owe more than yo make then you lose your job, now all the insurance you have to pay for these things if this happened does not pay for a year by this time you have lost everything and are in bankruptcy court, getting all debt removed and written off. trouble is many people have been doing it and americans have helped crash the banks because of their greed of wanting a good life and living beyond their means. So the government tries to lesson the hurt by passing laws to bail us out. That is a bad ideal because the government never gets money at a good price. IF they let the banks go and the market go on there own some oneone will buy them and run the instatutions to make money again. some lose some gain. But in the meantime companies and indivduals will hurt but if we don't go thru this period we will get worse, the market needs to correct itself without goverment intervention Freedom of the market as soon as the goverment gets involved you lose freedoms. here are some instances yo may understand. When I grew up MY grandpa did not need a drivers licence untill 1963 We did not have to have seat belts until 1977 and we did not have to wear motor cycle helmets till the 80's and now bycyclesist's must wear helmets in almost every state. so the choice in the matter has been taken away and now is inforced by the goverment. you must have insurance you must do many things that some think is bset for the country. But each freedom lost leads us ever closer to communisum, and if the goverment inacts this new bill we will be one more step to socialism.