The Financial Crisis for Laymen

[boffo]

I think the most common question people have about the current financial crisis is, "Wait, what's going on?" The media, blogosphere, pundits, and politicians of all political orientations seem to be more interesting in screaming and pointing fingers than in actually answering this simple question. So I've taken it upon myself

Comments

[pasquin]

Bravo - very even handed and clear.

Now put on your king-of-the-world hat and tell me which decision you'd advocate for. Please.

Here’s mine.

[boffo]

I'm not sure where I stand. Letting solvent banks fail due to a short-term crisis would be terrible. Bailing them out would also be terrible

[pasquin]

The part you added to my understanding (and I thought I had a grip on it) was revealing the mutual aid banks give in the form of short-term loans to each other. I had thought a credit meltdown would just (among other things) inhibit check cashing between banks, but as I understand your post, no bank would be safe - no matter how conservative their lending policies.

[evelynne]

Dude, thank you for this. This is the closest I've come to understanding what's going on, and if I read it a few more times I might actually grasp it.

[madbard]

If they do pass the bailout, they should make a constitutional amendment denying the government the power to ever to this again. That would at least mitigate further reckless-behavior.

(By "should" I mean in principle. I don't actually want the government putting a pen anywhere near the constitution.)

[boffo]

As long as we're dreaming about constitutional amendments, I'd like universal term limits, a line-item veto, a fixed cap on the federal budget, sunsetting of every law that isn't actively renewed on a regular basis, and a third branch of the legislature that does nothing but revoke laws.

[browascension]

That amendment was ratified in 1791. It's the 10th amendment. We don't need pens; we need reading glasses.

[shiftyeyeddogg]

Thanks for taking the time to write this out. I can follow the broad strokes, but I haven't been able to find a detail-oriented explanation of any of this, especially written so clearly.

[boffo]

You're welcome. I wrote this because of my own frustration in trying to find a clear explanation.

[a_motley_fool]

I'm now being told that the government wants banks to renegotiate loans at 90% of current market price and at 5.25% for 30 years. Basically a better deal than I could get right now, with good credit.