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View Full Version : Understanding the current financial crisis



Khalil_Allah
02-18-2009, 04:08 AM
http://www.pbs.org/wgbh/pages/frontline/meltdown/view/

This show is 54-min long (2-min. ending commercial) and it explains exactly what happened. It is so ridiculous that all the problems are the responsibility of such few people, people who were making millions and millions.

If you don't really understand it consider the following. It begins with subprime loans. Banks and mortgage companies started mortgaging houses to people at really low rates in the 1990's. People were paying like $500/mo to live in a $250,000 house. Well, when rates shoot up, a lot of people can't afford the new, higher monthly payments.
Turns out these mortgagers who thought they were paying the bank were, in fact, paying investors who bought their debts from the banks. Investors all over the world bought these mortgage debts from the banks, who packaged them together and sold them with insurance. FOR TRILLIONS! Basically, "if this investment goes bad, then we'll pay you out." When everyone starts defaulting on these mortgages at the new rates, the investors lose their source of income on the investment. Then, since the banks sold the investments as insured, the banks start owing all these investors tons and tons of money, all at once. Boom bankrupt. BANKS going bankrupt.

But when companies that are worth trillions start crumbling left and right, it is felt everywhere. So now they are trying to just inject money wherever they see fit.

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Imagine that I sell you my bike for $300. I know that you have little money, but that you want the bike. We agree that "you pay me $20 now, and $30 each month for 11 months." ESTAGHFIRALLAH RIBA! I wanted $300, but I will get $350. Seems like a good deal. But then I go and sell the rights to all that money for $325. Someone pays me $325, and in return, in 11 months they will get $350. We both make money off you, the poor person. You get what you wants right away, I get my money right away, and the third person gets the promise of future earnings... we are all happy.

Now multiply the numbers by like 300,000,000,000,000,000,000 and then add that you decide you can't continue to pay for the bike and give it back to me. Now you have essentially rented the bike from me at a low cost. I have the bike and all the money with $25 profit from the third party. The third party is out of luck unless I can pay him back.

Well, when the amount due to third parties is trillions of dollars, try rounding up that kind of cash in a few days. GLOBAL CHAOS. or 2009.
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