Submitted by TinSoldier on Sat, 10/04/2008 - 12:44am.
Glad you guys liked it.
My oldest son just heard that the bailout had passed and that Bush had signed it. He asked me what it was about and I tried to explain it. Let me see if I can recap what I said:
One of the important parts of an economy besides the production and consumption of goods is the movement of money. I pay you for potatoes, you take that money and you pay Joe for bread and Joe takes that money and pays me for some milk. Everyone gets what they need and as long as we each keep producing and moving money then everything is fine.
So the problem we are having right now is that people have stopped moving their money. Joe no longer wants any milk so I no longer have the money to buy potatoes from you and you can't get any more bread from Joe. Now none of us are happy or get what we want; we hold onto our money until we feel more confident that our money will get us what we want.
What happened in the US is that a lot of people wanted to buy houses which are very expensive, and now a lot of these mortgages are going into foreclosure which makes banks hold on to their money even tighter. People stop buying stuff and money stops moving and no one is happy.
See, the banks used to lend out these mortgages and they had a vested interest in making sure that the people who got these mortgages were a good risk -- the mortgages would be paid back. But some geniuses got the idea that since these mortgages were such a good investment they could package a lot of them together and sell them to investors -- people who like to use their money to make money. And there's nothing really wrong with that.
The problem is that the lenders suddenly had an incentive to give out riskier and riskier mortgages since they were themselves insulated from that risk. They would package these riskier mortgages with good mortgages and sell them all alike.
But then some of the mortgages went into foreclosure -- the people couldn't make their payments and these packaged mortgages were no longer such a good investment. Now the investors were stuck with a lot of investments that weren't worth what they paid for them, and no one wanted to buy them. So the investors no longer felt like they could risk whatever money they had left so they stopped moving their money in other ways. And that effect "trickled down" so to speak and then money slowed down and threatened to stop moving altogether.
So the government's idea was to buy a lot of these bad investments so that money could start moving again, making things better for people in the economy and the benefits would once again trickle down to everyone else and everyone would be happy again.
The problem is that it won't work that way -- the government is giving money to the people who made bad investments and who at the most may have to give up a luxury car or two or maybe a vacation home or a yacht or whatever. It doesn't do anything for the people who have lost their jobs due to outsourcing or the slowdown in the economy and who can no longer afford a place to live. There were far better solutions out there and there is little guarantee that this particular idea will work.
And so I told him that that was why I am opposed to the bailout. I hope that I'm wrong.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts. -- Bertrand Russel
ROFL!
Halloween is coming!
It's the most entertaining day of the year!
Glad you guys liked it.
My oldest son just heard that the bailout had passed and that Bush had signed it. He asked me what it was about and I tried to explain it. Let me see if I can recap what I said:One of the important parts of an economy besides the production and consumption of goods is the movement of money. I pay you for potatoes, you take that money and you pay Joe for bread and Joe takes that money and pays me for some milk. Everyone gets what they need and as long as we each keep producing and moving money then everything is fine.
So the problem we are having right now is that people have stopped moving their money. Joe no longer wants any milk so I no longer have the money to buy potatoes from you and you can't get any more bread from Joe. Now none of us are happy or get what we want; we hold onto our money until we feel more confident that our money will get us what we want.
What happened in the US is that a lot of people wanted to buy houses which are very expensive, and now a lot of these mortgages are going into foreclosure which makes banks hold on to their money even tighter. People stop buying stuff and money stops moving and no one is happy.
See, the banks used to lend out these mortgages and they had a vested interest in making sure that the people who got these mortgages were a good risk -- the mortgages would be paid back. But some geniuses got the idea that since these mortgages were such a good investment they could package a lot of them together and sell them to investors -- people who like to use their money to make money. And there's nothing really wrong with that.
The problem is that the lenders suddenly had an incentive to give out riskier and riskier mortgages since they were themselves insulated from that risk. They would package these riskier mortgages with good mortgages and sell them all alike.
But then some of the mortgages went into foreclosure -- the people couldn't make their payments and these packaged mortgages were no longer such a good investment. Now the investors were stuck with a lot of investments that weren't worth what they paid for them, and no one wanted to buy them. So the investors no longer felt like they could risk whatever money they had left so they stopped moving their money in other ways. And that effect "trickled down" so to speak and then money slowed down and threatened to stop moving altogether.
So the government's idea was to buy a lot of these bad investments so that money could start moving again, making things better for people in the economy and the benefits would once again trickle down to everyone else and everyone would be happy again.
The problem is that it won't work that way -- the government is giving money to the people who made bad investments and who at the most may have to give up a luxury car or two or maybe a vacation home or a yacht or whatever. It doesn't do anything for the people who have lost their jobs due to outsourcing or the slowdown in the economy and who can no longer afford a place to live. There were far better solutions out there and there is little guarantee that this particular idea will work.
And so I told him that that was why I am opposed to the bailout. I hope that I'm wrong.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
They would package these riskier mortgages with good mortgages and sell them all alike.
Below is a link to an article that explains how this part of your story happened.
http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1&pagewanted=1&hp&oref=slogin