Economic events
05-Feb-2009 01:36 AM

Moral lesson from the event
What's the moral lesson to what happen to me?
There's none.
Life is a puzzle, everyday you will have to cope for things that can't be explain and can't be predict.

The economic crisis genesis
At the school, there's a lot of talk of how the economic crisis starts. Every one knows that it come from the USA, but where and how?
My business professor says it came from a certain brothers company on which I don't have knowledge about. He said that the brothers companies invest heavily on the Iraq gulf war and got bankrupt, as a result the USA economy bankrupt.
I did not argue about this. He said that the information is an inside source from one of the brothers company's employee.
But there's a more credible explanation about this.
The USA economic crunch is a result of mortgage none payment, plain and simple.

Explanation:
The setting ... the United States of America
A house and lot is bought using bank credit loan. After some time a refinance is made making the time of payment longer and the price to pay higher. Monthly payments become slightly higher than before. Time have pass, another refinance is made the bank approved the loan. The house and lot price become higher than before and the monthly mortgage is now double. The higher monthly payments now become a burden to the owner. To cope with this, another refinance is made. Now it's almost impossible to pay for the triple high monthly mortgage. Solution for this is to sale the house. The house and lot price become 5 times higher now than its original price.
What do you expect now will happen, of course no buyer. Who want to buy a house price 5 times higher than the same house that is block away?
As expected the owner can't pay for the house anymore … the bank, who authorized the loan acquire the house and lot. The house and lot now became the property of the bank. Money now has turn to property. The bank now will convert the house and lot to money. To do this the bank has to sell the house. But because no one wants to buy the house (obviously) the bank's money now stuck in the house.

Imagine the same cycle happens again and again for years and in different banks.
This cycle happens not only on mortgage loans but on cash credit as well.

Money does not come from anywhere it has a beginning cycle.
What happen to the US credit is that not enough money came back. All have come out but never came back.


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