The credit crisis - a short term fix?

[joshwa]

It seems like we're heading towards a system whereby all european banks are garanteed by the governments... and it looks like the US are going to pump $700bn into their banks to prop up the system... however...

Has ANYTHING been done to sort out the US housing system? All this appears to be caused by sub-prime mortgages, where people take mortgages, can't afford them, and then ditch their houses, with no accountability. What's to stop this happening again in the US?

Today was when no one could be under any illusion that the global banking crisis is primarily a North American phenomenon.

There's a mess in Europe too, because European banks were also seduced over the preceding few years into lending too much to cheaply to consumers and businesses.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

Also - it appears it's the taxpayers money that is being used to rescue these banks - this month we'll all sigh a hugh sigh of releif and say "hoorah my bank is safe" but what about the month after when the government say "we are increasing taxes significantly to pay for the bank mess last month"?

How will this affect the future economy when our taxes increase significantly?

[TheAnimus]

The problem is basically a cronic lack of trust.

Everyone thinks that the counterparty is going to go bust. People are squabbling about how much 'Margin' they should give up to the counterparty, credit ratings are awful.

Now, why did this happen? Because people mark to market things they don't really understand, how do you know how much this CDO is worth? How can you possibly get a correlated risk factor when its in a basket? As such the idea is go by what the market sentiment is, ie what everyone else thinks.

So no one trusts each other, there is sod all volume in trade for the root course of the problem.

What people need to remeber is the amazing amount of tax revenue generated by the financial industry, its more than just the bailout, the government is loosing that revenue stream. If we'd had a prudent chancellor for the last 10 years, who had made hay whilst the sun was shining, we'd be ok. If however we'd had someone who learnt he could sign cheques with a rubber stamp, the government coffers will be suffering too.

So the **** has hit the fan, is this going to solve problems, no, shutting the stable door after half your heard has bolted isn't going to make them come back.

[joshwa]

This article : http://www.nytimes.com/2008/10/01/bu...in&oref=slogin says

The country is also far richer today, which means that a much smaller portion of the population is living on the edge of despair. No matter what happens, you’re not likely to see shantytowns.

But this is already happening - see the big groups of people living outside cities (there was a youtube clip a while ago), or alternatively living in their car. (in the US already).

[TheAnimus]

Indeed in the UK its quite bad, people even live south of the river in london.

[Lucio]

You know, people always wondered why I thought the entire financial system was based on make believe fairy dust. It seems I was possibly closer to the truth than it seems

I'm curious though, where does the knock on effect come from? Why do people loose their jobs because of a banking crisis (beyond of course, people actually working in the banks)?

[TheAnimus]

just because you don't understand something dosen't mean other people don't.

What banks have learnt is just because people claim to be able to understand something, dosen't mean they can.

The nock on effect is massive, not just the cocain dealers and strip clubs, but also the average company too. Most rely on credit in some way, this credit is going to disapare. The average joe on the street is going to stop spending money so freely, they won't be lent it so freely, so anyone that dosen't rely on 'recession proof' income, will suffer.

In short, its only the people who sell beer, fags, and work in the very impressively run companies that don't get stung.

[Funkstar]

I'm curious though, where does the knock on effect come from? Why do people loose their jobs because of a banking crisis (beyond of course, people actually working in the banks)?

Banks can't get funds so easily, so they don't give it out so easily. Businesses can't get funds so easily so they run into cashflow problems easier.

A lack of cash flow can kill a company extremely quickly, especially when it hits the ned of the month and they can't pay wages.


Thats over simplified, but you get the idea.

[j.o.s.h.1408]

either way its affecting all of us in one form or the other. i want to buy my first house next year and looks like i cant because of the over priced impossible money i need for a deposit plus the fact that banks are downright saying NO to most if not ALL first time buyers.

why dont they just print more money

[usenetz]

You would have thought by now we would have come-up with a system more robust than what is, IMHO, a glorified betting shop.

john