For those of you unfamiliar with how America reached this point, here's a quick lesson in global finance.
1)Banks sell loans. Loans make money from the interest they charge. Banks lend or borrow from other banks using that interest income as collateral. Loans are put into packages and traded on the stock market as securities. (A good example is a duplex that has rental income. The fact that the building has the potential to earn money, like interest on a loan, is the reason someone purchases the duplex. Buying a number of duplexes would increase your income potential.)
2)The next part of that equation is the high mortgage defaults. Banks sold Adjustable Rate Mortgages (ARM's) when lending rates were low. They were attractive to people because the payments were low and affordable. But when the rates rose the monthly payments rose as well and quickly became unaffordable. When payments aren't made, the house goes into foreclosure and the loan into default. Going back to point #1, those bundled loan securities were now losing value due to the defaults which means they no longer had the potential to earn money. As a result, banks stopped lending to other banks because they couldn't trust their loan packages.
3)Before the mortgage crisis, loan packages which had been turned into securities were very profitable. As a result they became the bulk of many investment portfolios. Companies, individuals, and governments used them to loan, buy, sell, trade, and speculate. When the packages started collapsing because the loans were defaulting, it created a spiral that affected everyone. Some of those companies collapsed because they weren't diversified (split evenly) enough, and thus started the closing and bailing out of so many.
***Warning: Opinions beginning***
Much of the blame for this has been leveled at the banks and the government for pushing these ARM's. And without reserve I know banks wholly took advantage of many people just to make a buck. They swindled people like travelling salesman of old (and doctors bedding down with pharmaceutical companies today.) They shined a rainbow on the positives and hid the negatives behind smoke screens. At the root of all companies who deal with other people's money should be the ideal of ethics. We should be an industry of trust. The banks that pushed ARM's (and the government who provided incentives for those sales) violated and destroyed that trust.
That said, I am thoroughly disgusted that everyone is so quick to blame others for their problems. True, banks were throwing out mud that looked like gold, but that does NOT take away the fact that the consumer didn't take responsibility for themselves. If I walk in front of a train it is not the trains fault --because it didn't stop-- that I died; rather it is purely on me. I am tired of people crying foul when patience and good judgement would have spared them from any ill results.
When Ell and I bought our log house, the developer we bought it from penciled off a tract of land from the property we thought we were getting. We didn't see it (because we didn't inspect the final documents) and a couple years later we lost a large portion of land we thought was ours. This pissed me off like nothing ever had before in my life. I contacted a real estate attorney and threatened to sue the developer for taking advantage of us and stealing our land. I didn't though, because in the end what happened was my fault for not being careful. You can chalk it up to young, ignorant stupidity, but that doesn't take away the fact that what happened could have been prevented if I'd had patience and better judgement.
Please know I'm not defending banks here. Nor am I saying there aren't crooks and thieves in this crazy world. But I've had just about all I can take with the no-responsibility, pass the buck, it's not my fault mentality this country lives in. Add onto that the sheep attitudes so many have because they refuse to pursue thinking for themselves. I have no compassion for people who won't pull themselves up from problems or admit their own errors. I am sick of where we sit as citizens and am convinced these attitudes will destroy our country if we don't combat them. Wake up people. Read, listen, inspect, review. What happens to you is a result of your own actions.
Thanks for letting me rant.