Not sure if that's merely propaganda or not, one things for sure though, McCain should definately sponsor that video. I'm glad we don't have this kind of hassle in the UK...would be difficult.
I'm a corporate finance major and so everything I do aside from Empires is always related to finance and most certainly economics. Naturally, the Subprime Mortgage Crisis and ensuing Credit Crunch are at the forefront of my attention span lately. What I can say about this video is that there are a lot of facts contained within, but it uselessly plays the blame game. At every step of the way you can find faults of the borrowers and lenders. Many homeowners, especially in the lower middle class and lower class, who were being encouraged to become homeowners, don't typically understand important concepts like the time value of money and how changes in economic conditions can affect their ability to pay a variable rate mortgage, or even their ability to pay a fixed rate mortgage. There were many predatory lenders involved, as well as clueless borrowers. So if you break the crisis down into its most basic timeline: -Clueless borrowers & Predatory lenders setting up lots and lots of variable rate mortgages allowing new homeowners to buy and continue to pay for homes. -The commercial banks pool these mortgages together, and create derivative securities. A derivative security is really nothing other than splicing together (or separating apart from one another) different aspects of a debt or equity asset. So in effect, many securities known as "Mortgage Backed Securities" were created. Some of these securities consist of the interest payments on the loans, others consisted of the principle, and many consisted of both. -Many people purchased these securities. They were great at the time, and although they're highly risky, a higher risk means a higher return. A lot of them did at least consider the fact that some homeowners may default on their mortgages. So these holders of Mortgage Backed Securities moved on to the next step. -The MBS holders purchased a lot of Credit Default Swaps (CDSs) from large investment banks such as Bear Stearns, Lehman Brothers, AIG, Merrill Lynch, Freddie Mac & Fannie Mae, etc. These investment banks also held lots of MBSs themselves. A CDS is most basically viewed as "default risk insurance on a debt security." Think about the problem this poses. Imagine New Orleans, a coastal city in which many people (though not all) probably had flood insurance and wind insurance. The insurance companies didn't truly suspect that so many clients would be filing claims at once. They might expect to have to cover a few people here or there spread out over a good period of time. When a hurricane (Katrina) rolls through and really does some damage, many people are then looking to those insurance companies. Those companies have to deny a lot of claims and also start bleeding tons of money. Nobody really anticipated the magnitude of homeowners defaulting on their mortgages. A few isolated defaults here or there is no big deal, but a massive amount spread all across the nation is much like a hurricane rolling through. Particularly here, you can think about "Well what caused the economic conditions that made homeowners unable to pay their mortgages due to increasing interest rates?" You can leave that to assessing what happened throughout the late 1990s and from 2000 to present 2008. Think about what factors affected the economy: war, politics, other government spending, other foreign policy affairs, etc. (Really anything that affected the economy can be faulted, because without an increase in interest rates, these mortgages would not have experienced such widespread defaults.) -Now these institutions who've been bleeding for the past 6 months to a year, are stuck with these MBSs and CDSs that they just can't get rid of because they can't sell them. That then creates a "credit crunch" or "liquidity problem" for these institutions which need to be able to provide utility (through liquidity) to businesses in all industries. This grinds the economy to a halt if they can't provide liquidity. So, as you can see, there is fault to be found at literally every turn. Videos like the one on YouTube above do nothing other than try to point more fingers at a certain area, which does absolutely nothing to help people learn about what truly led to this problem at every turn from every angle. When this problem subsides or hits rock bottom, the most important thing is that we learn from this. More young people need to be well educated in economics, personal finance, and need to understand the importance of maintaining an appropriate level of risk aversion. One of the key problems here is that a lot of investors of the 1990s weren't risk averse enough and many of them would arrogantly (and ignorantly) suggest that "our economy can never fail." It can experience major problems, and it's in its nature to experience them. Education about these issues (and how to avoid them), as well as regulation on derivative securities and risk management, needs to improve drastically.
Meh, non-financial sectors are doing fine and good businesses are still getting loans. Marginal productivity of capital is still above post war averages. Let wall street fail by itself. Its about time. Fall in housing prices are what caused the spike in interest rates/defaults. Most of the liquidity trap is from maturity mismatch. ie 1/4 of a lot of the investment banks debt that they used to leverage the 10-20 year mbss was from overnight repo. If you want to blame someone blame the rating agencies for giving so many sub prime MBSs AAA ratings.
I agree and have equal distaste for the unethical practices of the rating agencies. They were indeed a key problem and I was talking with someone about that just the other day. Good businesses are still getting loans for now, but something has got to give sooner or later. I wouldn't necessarily bank on it, anyway. You're correct about the fall in housing prices, but I tend to view it a step further and think about what conditions combined to lead to housing market decline. I think Wall Street should be allowed to fail by itself, but I still think that the reverberating effects this particular time around won't be worth it. Too bad our commander can't just drop more refineries. :/
Mcains trying to stop jeep spamming gov procedures. I'd take that over Obamas new refs. Cause then we still have a crap load of jeeps wasting res. And if ALL of the democrats in sanate voted against a debate on this matter multiple times under clinton and Bush administrations, (Like they did) then I'm playing the blame game.
And after all that hard work the video was removed due to a copyright violation. Lulz is the internet.
I like how you guys put empiresmod references in your posts, made me smile please continue the debate for it is very interesting to read
