“It is well enough that the people of the
nation do not understand our banking and monetary system, for if they did, I
believe there would be a revolution before tomorrow morning.”
– Henry Ford
– Henry Ford
Trying to understand the economic crisis by
only watching five minute clips on television news or from just about any news
source for that matter usually goes through one ear and out the other. It’s
complicated. But understanding the basics of this economic crisis is essential
to understanding what it will take to get out of it.
So here is our guide to understanding the
basics of the economic crisis (if you have a good resource you’d like to add to
this guide, please leave us a comment at the bottom of the page, and we’ll be
happy to look over it and include it).
1. The absolute basics of the banking system and the mortgage crisis:
1. The absolute basics of the banking system and the mortgage crisis:
Listen to the following podcast to learn
the basics of how all this started (you can also download the podcast by clicking on the link):
Here, you'll learn the basics of how banks work, the basics about the banking crisis, what it means for banks, what it means for
the American government and what it means for average Americans. You'll also see the options available to 'save' American banks. Understanding
current options available to save the banks and their consequences.
(You'll learn the following terms: Liabilities, Capital, Assets, Toxic Assets, Balance sheets).
(You'll learn the following terms: Liabilities, Capital, Assets, Toxic Assets, Balance sheets).
2. A deeper in the financial
industry, CDO’s, CDS’s, Rating Agencies, and the derivatives market.
Rent, download or borrow the following
documentary: Inside Job
IF you absolutely cannot get your hands on
this documentary, or you want some extra review, here follow along here.
Why do banks give out loans to “deadbeats” (as mentioned in the audioclip). This means looking a little closer into the financial system and understanding (Collateralized Debt Obligations). See this excerpt from Inside Job:
Why do banks give out loans to “deadbeats” (as mentioned in the audioclip). This means looking a little closer into the financial system and understanding (Collateralized Debt Obligations). See this excerpt from Inside Job:
http://www.youtube.com/watch?v=QXw5MaaXjLY
So pension funds can only invest in highly rated securities (in other words it has to be invested in pretty safe stocks, bonds, investment funds. They don’t want to lose people’s retirement money). So how might a pension fund take out lower rated securities? Essentially by purchasing ‘insurance’ or Credit Default Swaps in order to be ‘risk-free’. Now we start looking at CDSs (Credit Default Swaps). Watch the following clip to help you understand:
So pension funds can only invest in highly rated securities (in other words it has to be invested in pretty safe stocks, bonds, investment funds. They don’t want to lose people’s retirement money). So how might a pension fund take out lower rated securities? Essentially by purchasing ‘insurance’ or Credit Default Swaps in order to be ‘risk-free’. Now we start looking at CDSs (Credit Default Swaps). Watch the following clip to help you understand:
Part 2: Looking at the bigger picture…and
starting to see where gambling comes into play:
So in September 2008 the ticking time bomb
goes off. People default on their loans. Pension funds ask to get their money
from their insurer, but they can’t pay up because they don’t have enough
capital to pay everyone. Thus bringing an insurance provider like AIG down to
its knees begging for a bailout. And where does the government’s money come
from? Taxpayers! In other words, citizens are paying up for people who were
essentially gambling with their money.
3. What about what’s going on in Europe?
To be continued....
To be continued....
