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| Spurious Generalities This is the general discussion and chat forum. People can discuss just about anything they want to in this area, providing it doesn't fit in one of the other forums and provided that it will bring conversation to the thread. |
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# 1
2008-12-11, 23:30
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How does the credit crunch work?
so ive been hearing lots of theories from lots of people and dont know which one is true. And ive looked in google and they try to explain in terms that an average person would not understand. so totse can you explain this? is there a ood video or something around that explains this shit?
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# 3
2008-12-12, 00:35
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Re: How does the credit crunch work?
Quote:
Originally Posted by TheVizier
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fucking epic
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# 4
2008-12-12, 04:03
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Regular
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Canada
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Re: How does the credit crunch work?
First, banks figure out a way to increase their rates of return by issuing loans(to individuals who would not normally qualify) and then selling those loans as an asset backed security (so the bank assumes no risk)
Mortgage brokers get a commission from the bank for mortgages so they hand out these shitty mortgages.
Now how do you increase the rating of a security, you insure it, AIG insured a huge chunk of these securities, without looking at the interrelatedness of failure or the actual individuals behind it.
Investors see the "good" rating on these bonds and buy it, at the start all is good as the individuals make the payments however as time goes by people can't make the payments investors don't get their money. People default on the homes en masse which causes the selling prices of homes to lose making the asset backed security not worth that much.
A lot of people and institutions/corporations/groups owned these which hit them.
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# 5
2008-12-12, 04:18
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Re: How does the credit crunch work?
Quote:
Originally Posted by superspeedz
First, banks figure out a way to increase their rates of return by issuing loans(to individuals who would not normally qualify) and then selling those loans as an asset backed security (so the bank assumes no risk)
Mortgage brokers get a commission from the bank for mortgages so they hand out these shitty mortgages.
Now how do you increase the rating of a security, you insure it, AIG insured a huge chunk of these securities, without looking at the interrelatedness of failure or the actual individuals behind it.
Investors see the "good" rating on these bonds and buy it, at the start all is good as the individuals make the payments however as time goes by people can't make the payments investors don't get their money. People default on the homes en masse which causes the selling prices of homes to lose making the asset backed security not worth that much.
A lot of people and institutions/corporations/groups owned these which hit them.
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Which works out in the end to money being harder to get for banks and consequently, individuals.
Last edited by Ed Lister; 2008-12-12 at 04:34.
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# 6
2008-12-12, 04:29
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Re: How does the credit crunch work?
And the cure for all of this is to fire up the printing presses and print more money, aka "bailout"
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# 7
2008-12-12, 07:18
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Re: How does the credit crunch work?
what is an "asset backed security"?
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# 8
2008-12-12, 14:35
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Re: How does the credit crunch work?
Quote:
Originally Posted by TheVizier
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There goes my fucking joke.
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# 9
2008-12-12, 14:39
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Re: How does the credit crunch work?
Quote:
Originally Posted by Blow to Pop
And the cure for all of this is to fire up the printing presses and print more money, aka "bailout"
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It's not a cure, but merely a last resort. Doing so ruins the economy, but not doing anything will fuck the economy worse, so it's simply the lesser of two evils.
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# 10
2008-12-12, 14:41
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Re: How does the credit crunch work?
Quote:
Originally Posted by scrooch
what is an "asset backed security"?
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It means you've got something fall back upon and sell to reach parity in tough times, if need be.
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How does the credit crunch work?
Re: How does the credit crunch work?