16 years
the problem we're seeing is that instead of depositing €100, i give them a deed to a house worth €100 and borrow the cash. they sell the deed on, on the assumption ill eitehr pay the €100 plus interest, or they'll sell the house for €100 plus a little bit. again, this shouldnt be a problem. except not only can i no longer pay back the €100, even if they sell the deed they'll only get €80 as the property market is in trouble. multiply that by upwards of a trillion.
I think the main problem goes deeper than this...
Fed's target rate is currently 2%. This results that investors should keep their money in the economy instead of government bonds, although results cheap loans as well. And if you are American, your whole life is bounded to loans, when you study, buy a house or go to the hospital, you always need a loan because you can't afford it, and if you have cheap loans, you most likely will take it. But what happens if a market fills up? You give loans to clients otherwise you wouldn't, loosen up the conditions so you still have clients. And what happens if your loan's interest is less than other stocks benefits? You invest your loan into stock and pay your loan from the interests. Also there were some firms which couldn't insure these stocks (having 2mill dollars to cover 100mill debts for 20,000$ a month), these businesses were never checked, just like those subprimes.
The whole thing is a huge pyramid scheme, a bubble and it was waiting to be burst.
Indeed, the property market has collapsed as it has reached the growth limen due people don't have enough money nowadays, so prices started falling, but it was just the match to burn this down, spiced up with "this can't happen with us because our economy is strong" misbelieves.
They thought they found the recipe for the perpetual money-making machine.
C'mon, it worked! Overall, money is just a piece of paper and as it goes along, soon they can have as many dollars as they want! Although it won't worth a penny... :rolleyes: I can imagine the new 1 million dollar note with GWB on it and a slogan: "Because we f*cked it up!"
They still get higher interest from you than they pay other banks for lending the same money.
If you can actually pay back the loan and you did not invest into CRDs... ;)
But then shortselling began
Another interesting feature: That you can actually make money with losing on stock... and you don't even have to have the stock in your hand!
That´s why I think treasury can even make some money with this bailout, even if it buys those deeds for € 50.
IMHO, US economy has fundamental problems which can't be solved only with bailouts. It needs reforms and monetary restrictions. Another need for state control over monetary policy but it is indeed interacting into the free market, which capitalists don't like. Although they should realize that a society without control is called anarchy and it's true for any economy as well...
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