Bailout plan-> depression?

okirun · 09-27-2008, 06:50 PM

What are your thoughts?

I hope it won't end up as another great depression...

Truthed · 09-28-2008, 07:33 AM

I don't think after the changes we made after the last great depression that we can ever get THAT bad again, but times are not looking good

kidflash2008 · 09-28-2008, 08:32 AM

The Great Depression was caused by people buying stocks with credit, and then using the stock that was bought with credit to buy more. When the loans were called, there was no cash to pay them, and the prices of the stocks (which were artificially high because of the way people bought them) dropped immediately. They changed it so one can buy stocks with cash only or other assets.
What is going on today is almost the same thing. To get more people to buy houses, the financial companies started "interest only" loans. The payments would be small for a year or two before doubling or tripling to the amount that would normally be paid. I recall Suze Orman talking about how incredibly stupid this idea was.
With the interest only loan, a house with a mortgage payment of $1200 would be only $400 to $600 a month (depending on down payments, etc). Some people thought "Hey, if this costs only $400 a month, let's get a bigger house for the $1200 a month." The problem is when the interest only loan turned into a regular loan, the payment ballooned up to $3600 a month. The home buyer had no liquidity in the house as they were only paying for the interest on the house. With many millions of people doing this, they could not afford their homes. The banks would foreclose, and then would have to pay the maintenance and taxes on the homes as no one could buy them. Mortgage and insurance companies lost a great deal of money on these houses, and the banks had to write off bad loans.
The $600,000 house became a $300,000 house over night, and this is the start of a major meltdown.
Whose fault is it? Everyone, from the person who bit off more than they could chew, to the bank that was dumb enough to lend the money. Almost sounds like the lessons of the failed savings and loans crisis were never learned.

Geri_Mars · 09-29-2008, 02:47 PM

Quote:

Originally Posted by okirun

What are your thoughts?

I hope it won't end up as another great depression...

Heh...I saw the words - Great Drepression and thought there was a topic about my wedding day

LOL

No seriously...things are bad now, but i don't think it could ever get as bad as the great depression...at least I hope not

09-27-2008, 06:50 PM	#1
okirun Investigator Join Date: Aug 2008 Posts: 230	Bailout plan-> depression? What are your thoughts? I hope it won't end up as another great depression... __________________ "Anyone who stops learning is old, whether this happens at twenty or eighty. Anyone who keeps on learning not only remains young, but becomes constantly more valuable regardless of physical capacity."

09-28-2008, 07:33 AM	#2
Truthed Administrator Join Date: Jul 2008 Posts: 1,079	I don't think after the changes we made after the last great depression that we can ever get THAT bad again, but times are not looking good __________________ "You Want To Believe" http://www.truthed.com truthed@truthed.com

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09-28-2008, 08:32 AM	#3
kidflash2008 Senior Investigator Join Date: Sep 2008 Posts: 1,699	The Great Depression was caused by people buying stocks with credit, and then using the stock that was bought with credit to buy more. When the loans were called, there was no cash to pay them, and the prices of the stocks (which were artificially high because of the way people bought them) dropped immediately. They changed it so one can buy stocks with cash only or other assets. What is going on today is almost the same thing. To get more people to buy houses, the financial companies started "interest only" loans. The payments would be small for a year or two before doubling or tripling to the amount that would normally be paid. I recall Suze Orman talking about how incredibly stupid this idea was. With the interest only loan, a house with a mortgage payment of $1200 would be only $400 to $600 a month (depending on down payments, etc). Some people thought "Hey, if this costs only $400 a month, let's get a bigger house for the $1200 a month." The problem is when the interest only loan turned into a regular loan, the payment ballooned up to $3600 a month. The home buyer had no liquidity in the house as they were only paying for the interest on the house. With many millions of people doing this, they could not afford their homes. The banks would foreclose, and then would have to pay the maintenance and taxes on the homes as no one could buy them. Mortgage and insurance companies lost a great deal of money on these houses, and the banks had to write off bad loans. The $600,000 house became a $300,000 house over night, and this is the start of a major meltdown. Whose fault is it? Everyone, from the person who bit off more than they could chew, to the bank that was dumb enough to lend the money. Almost sounds like the lessons of the failed savings and loans crisis were never learned.