- r/NewsForTeens
I’m confused about how x resulted in y and then how that resulted in z.
I know this topic is already talked about and explained by sources, but intertwining all the information would probably be extremely tedious and it would be hard to find the connections I’m looking for.
In essence, how did a crash of the housing market in the US snowball into all that?
What did they gain by doing this?
How deeply did the financial crisis affected the people around you? Any stories you can share?
It's obvious we're all just guessing here. Recession may come, may not come, may be a self-fulfilling prophecy.
I don't have a lot of data but I'd imagine things are nowhere near as bad as they were in 07-08. What were the warning signs during '06? Do they look similar to warning signs now?
Wall Street issued a bunch of debt (i.e. created a bunch of money) that was very poorly collateralized for various reasons. When it came to light that their debt wasn't worth what they thought it was worth, they successfully made the case that the Fed should intervene on behalf of all of the people all over the world who had built their own little financial structures on top of the supposedly solid foundation of Wall Street's newly created credit money. The Fed's solution was essentially to replace most of Wall Street's bad collateral ("troubled assets") with good collateral (cash money.) As a result, Wall Street got to keep a big chunk of the new money it had created, the people who depended on Wall Street debt mostly got paid, and the global economy did not entirely collapse.
What have I gotten right? What have I gotten wrong? Be honest; I have no formal background in economics, so I'm completely prepared to forgive myself for any embarrassing mistakes I've made.
What would have happened during the financial and mortgage crisis of 2008, if the government had focused its efforts on propping up homeowners instead of the big banks?
I think I understand that when so many ARMs adjusted upwards all at once, a lot of people who had been able to afford their intro/teaser rate mortgage payments, suddenly couldn't afford their new payments, and they had to either refinance, sell, or be foreclosed on. But also, the housing market tanked, so people suddenly couldn't use their home value as collateral to refinance, and they couldn't sell their houses for what they still owed on their mortgages, and so one way or another they lost their homes, which screwed their lenders, which screwed the investors holding the mortgage-backed securities, which screwed the big banks. I think I understand that the government stepped in with TARP to inject capital directly into the big banks who were on the hook for these now-toxic MBS's. But what if government (not necessarily Treasury) had stepped in with something else to ensure that most of these ARMs simply kept on being paid instead of defaulting? Would there still have been such a crisis?
What I'm wondering is, if all those people who suddenly couldn't afford their mortgage payments as a result of their ARM rates going up, if they (by way of some kind of government intervention) had just been allowed to stay in their homes and keep paying what they were paying originally (at the intro/teaser rate), what would have been the effect on their lenders/the MBS holders/the economy as a whole?
I'm sure there's a variety of ways this might have been accomplished, but just as an example, if Congress had passed a law to institute a moratorium on ARM rates adjusting upward for already-existing primary-residence mortgages?
Obviously some mortgagors would still have defaulted on their home loans, but it would have been far fewer, right? Would this have been enough to decelerate the crisis, prevent the default of any of the MBS's, and/or stem the collapse of any of the financial institutions caught up in that mess?
TIA for shedding some light
India is a world's leading service providing country, and providing seamless service in IT, Banking and telecommunication. Mostly in IT, what if world hits with one more crisis like 2007-2008, What would be the magnitude of the disaster? Can we handle it?
- r/NewsForTeens
