span institutions were lending more class="cap">H ow did and more money to questionable we get here…on the verge of borrowers as a route to quick the biggest financial crisis profits. They could "package" since the 1930's? So much has these mortgages and sell them to happened in the last few weeks someone else. The rating agencies that I felt it was important to blessed them and they were sold, step back and try to get a handle across the globe.
on what has transpired. We
This makes me think of a experienced a real estate bubble Warren Buffet quote, "Only when and as with most bubbles the tide goes out do you discover throughout history, they result who's been swimming naked." The from too much of a good thing. tide in our case is home prices. Credit is that thing. At the As home prices decline, these time, it all seemed so wonderful. packages of mortgages depreciate More and more people were living in value. Then the financial the American dream of home institutions holding these risky ownership. Those already owning packages have to devalue them on homes were pleased to see their their books.
value rise and happy to tap into
Now the pendulum of easy the equity to purchase cars, credit has swung too far back in vacations, and bathroom remodels. the opposite direction. Every This story played out in so many player in the markets has gotten countries. more conservative, in fact down But ingredients were coming right stingy, with lending. We together in the financial markets need qualified buyers to step up that make for a bad recipe. Too and buy homes, thus supporting many people were getting loans prices. But lenders have become that would likely never be so strict that this is not repaid. The big financial happening, and home prices
continue to decline. Mortgage the financial system. Just as the securities decline in value, the markets breathed a temporary sigh strength of the financial of relief, trouble was emerging institution weakens, so they lend overseas. less, and home prices continue
Fortunately, the Euro nations down in a self-perpetuating and Great Britain unveiled a vortex.
bailout plan that was perceived
This reluctance to lend is to be more comprehensive than the what brought us to the current US plan. Investors believed it crisis. Credit and lending are could be even more effective the red blood cells of the because it guaranteed bank financial circulatory system. deposits and injected capital Think of them as carrying needed directly into ailing banks.
oxygen and nutrients to sustain
These actions will likely the body. What Fed Chairman avoid the very real threat of a Bernanke and Treasury Secretary depression, but is seems likely Paulson saw in mid September was at this point we are entering an a credit contraction of economic recession. Things will unprecedented proportions. The get better, but it will take time recent take over of Fannie and for the economy and financial Freddie and the rescue of AIG, markets to heal.
were supposed to restore some sense of order and keep credit
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