Financial crisis ripples through

[Adrian II]

The credit crisis explained in black and white

[Husar]

That was very interesting, so in the end when I mortgage my house(no I don't really have one) to get more money, the money might actually come from a small town in Norway because the whole thing got sold a quadrillion times and noone believes I could ever pay it back, or something like that.

And now I should participate in that and make a company on the cayman islands to make the world a better place and rescue the US taxpayers?

Or how about I do nothing and watch the US ruin itself, hoping that the dollar will only be worth half a euro soon so that I can make a nice cheap trip over there and come back here to rich socialist laland and enjoy government intervention again?

Seriously, if I got your link correctly then there is a crisis because of these practices as describes in the comic, the investors will lose trust and stop investing in those bonds and mortgages etc which in turn deprives certain banks of their money because they more or less live from those investments?

[Kralizec]

It starts when investors realize that the whole practice is built on quicksand and stop putting money in it. As a result the mortgage rent will rise a bit, so that fewer people can take them. Since less people can take mortgages, the demand for houses drops and so do the prices. Then you have millions of people whose houses just have become worthless, but who are still stuck with a large mortgage debt and a lot of investors who feel screwed because they've indirectly been financing these houses while they were still expensive.

At least, that's how I understand it. I've never been good at grasping economics.

[KukriKhan]

I think Fenring and Husar have a pretty good grasp of the concept.

What I think we're watching (in my extremely humble, under-educated opinion) is the (so far) gradual collapse of the US's credit-based spending system - which is to say, purchasing things based on an exaggerated estimate of future ability to pay. That system has 'infected' the entire society from individual consumers/citizens, thru finacial institutions, to government.

Mostly financed, in a convoluted manner, by emerging economies: China, mostly. They (specifically, the People's Army of the PRC) hold a whole bunch of our Treasury Notes. They've basically financed our deficit-speding 'war on terror'.

In 5 years, I predict a return to financing ala my parents' day: "Need something? Save up!" This, after a bunch of poeple lose their over-valued homes and underpaid jobs, or have to work much longer in their lives than they originally thought they would need to.

In sum, I think it's gonna get worse before it gets better - but it will get better.

[Adrian II]

It starts when investors realize that the whole practice is built on quicksand and stop putting money in it.

Think hard about what you wrote there. Does the latter follow from the former?

[Husar]

Oh yes, the US based system on buying things you cannot afford, I wanted to live it a bit and bought a 400EUR PS3 with money I didn't have.
Of course I will be able to pay it back, I wonder which norwegian town actually owns it until then though.

Of course this is a rather small debt and would look even smaller if I'd tell you more about it, but one has to wonder whether people are aware what they are doing when buying a house for many thousand dollars or euros and take a credit for it. My dad did the same and few years later his company went bankrupt, he got out pretty well but not well enough, so nowadays the finances are pretty tight, manageable but tight, in other families that could mean the family is ruined, as usual, if you take a risk, it does not always end well, I guess when people get used to taking risks they take higher and higher risks to the point where they took the wrong risk and it threatens to destroy their lives/companies, a bit more care and thought may not hurt, will be interesting to see whether the banks go on just like now once this crisis is over.

[Sigurd]

Oh yes, the US based system on buying things you cannot afford, I wanted to live it a bit and bought a 400EUR PS3 with money I didn't have.

Husar, Husar ...
Consumer loans are too expensive.
What is the real price of that PS3 when that loan is finally paid?
You should have saved for it and then bought it... much cheaper that way.

My problem is I have the money, but aren't allowed to buy one, because I apparently can't control my gaming addiction (according to my wife).
I can't just buy it nonetheless because the sanctions she could impose is not worth it.
Damn addictions!!!
Addicted to love and gaming and they are not vereinbar (are there no English word for it?)

[Husar]

Husar, Husar ...
Consumer loans are too expensive.
What is the real price of that PS3 when that loan is finally paid?
You should have saved for it and then bought it... much cheaper that way.

Maybe 5 bucks more, like I said you don't know the details.

My problem is I have the money, but aren't allowed to buy one, because I apparently can't control my gaming addiction (according to my wife).
I can't just buy it nonetheless because the sanctions she could impose is not worth it.
Damn addictions!!!

We have to do something about that, limit the amount of games you buy for example, even the best game gets boring when it's the only one you play day in day out. A bit of self-discipline, prove to yourself and your wife that you're above that addiction.

Addicted to love and gaming and they are not vereinbar (are there no English word for it?)

they are not compatible?

[macsen rufus]

Husar - I don't think you have so much to worry about with your credit, compared to many:

(07-17) 04:00 PDT Washington - -- As the Bush administration proposes backstopping mortgage giants Fannie Mae and Freddie Mac with a $300 billion line of credit and Congress contemplates another economic stimulus, the question is who will bail out the government?

"People seem to think the government has money," said former U.S. Comptroller General David Walker. "The government doesn't have any money."

A rare consensus has developed across the political spectrum that the government's own fiscal affairs are precarious, with an astonishing $53 trillion in long-term liabilities, according to the Government Accountability Office.

To put that number in human terms, the debt has reached $455,000 per U.S. household. As that debt grows, the United States increasingly relies on foreigners, including China and Middle East oil producers, for financing.

"The factors that contributed to our mortgage-based subprime crisis exist with regard to our federal government's finances," said Walker, now head of the Peter G. Peterson Foundation, a group established to raise alarms about the nation's budget. "The difference is that the magnitude of the federal government's financial situation is at least 25 times greater."

Concern grows over a fiscal crisis for U.S. (SF Chronicle)

[SwordsMaster]

Exactly. And where did the average american spend his half million? On the war on terror? I'm sure that if given the choice they'd rather spend on something else.

So no tax cuts during the next election, I'm afraid. If anything taxes will go up, up, up. And social security down, down. So get ready to dispose of your elders in some kind of free-environmentally friendly way.

[Husar]

Husar - I don't think you have so much to worry about with your credit, compared to many:

I never meant to say I did, sorry if it derived the thread.

But my guess is that the national debt of 455 thousand per household won't have to be paid back by the households, if that were the case it could take hundreds of years.

[KukriKhan]

I never meant to say I did, sorry if it derived the thread.

But my guess is that the national debt of 455 thousand per household won't have to be paid back by the households, if that were the case it could take hundreds of years.

Precisely; my now 6-year old grandson will be paying for the privilege of having grown up while his country (and his Dad) was fighting a war on terrorism. Hopefully, he'll have an 8x12 foot extra bedroom for his Grandpa Kukri to sleep in, when he's not off to work in his walker-wheelchair, as a greeter at WalMart.

[Husar]

You're a lucky guy kukri, here they rationalized greeters away, if we ever had any in the first place.

[macsen rufus]

I never meant to say I did, sorry if it derived the thread.

I should have put a in there, I wasn't implying you were whining or anything

the national debt of 455 thousand per household won't have to be paid back by the households

Not directly, but it will through taxes, eventually.....

@Kukri -- I certainly hope there's someone left to lend your grandson a mortgage when the time comes, either that or real estate continues to get "more affordable" (that being the shiny, optimistic face of negative equity and rising slumburbia ). Better make that walker-wheelchair an off-road model, things are going to get very bumpy.

Am I the only one seeing the general contribution of the finance industry being one of a handful of super-rich bonus-fed bankers etc, a handful of bankrupt banks, plus millions of homeless (at least repoed) workers (who may not even have their jobs much longer), and millions of unsaleable empty homes now seized by the bankrupt banks? It is a horrible mess, and personally I'm not thinking 'recession', I'm thinking 'depression', there's so much going wrong all at once.

Anyway, guns, tobacco and alcohol are reckoned to be good stocks to buy into in a depression....

[Adrian II]

Am I the only one seeing the general contribution of the finance industry being one of a handful of super-rich bonus-fed bankers etc, a handful of bankrupt banks, plus millions of homeless (at least repoed) workers (who may not even have their jobs much longer), and millions of unsaleable empty homes now seized by the bankrupt banks?

No, I think more and more people will understand that the financial deregulation and market liberalisation of recent decades went much too far to be productive anymore. It's not just bankers who have grown fat on the stupidity of the middle classes who voted for these policies and only now recognise the consequences. Hedge fund managers are growing fat these days by manipulating the price of essential commodities.

I hope that one outcome of this cycle of nonsense will be that central banks will no longer be independent. This fetish of the 1990's should definitely be crushed, and its cult eradicated.

[Marshal Murat]

This fetish of the 1990's should definitely be crushed, and its cult eradicated.

Can we start with the Clintons?