Monday, October 27, 2008

what went wrong with the economy?

Marina Lee explains. Read it all here.

Short version:

  1. Low interest rates –> heavy investing and heavy borrowing
  2. Extra borrowing and low regulation –> extra subprime mortgages
  3. Extra subprime mortgages and speculation –> housing bubble
  4. Housing bubble starts to burst –> Homes are worth less than loans –> more foreclosures
  5. More foreclosures –> mortgages back securities fail –> Credit default swaps are collected –> banks fail
  6. Banks fail –> Crisis of Confidence –> banks won’t lend to other banks
  7. Banks won’t lend to other banks –> Credit Crunch
  8. Credit Crunch –> Stock market falls –> Crisis of Confidence
  9. Repeat 6-8 –> Negative feedback loop, “rolling crisis”

1 comment:

  1. What went wrong with the economy? Short answer: democratic policies were enacted on a capitalist economy and has nearly wrecked what was a great system. Democrats and our money just do not mix.