Upside Down Mortgage

Us Subprime Crisis 2008

Question: Can some one explain me the US subprime crisis, in layman's language.?

I am listening a lot about US sub prime crisis and about US going in recession in first quarter of 2008. Kindly explain me about it and its effect on asian economies as well as on international economy. If possible then do mention about the corrective measure which US government and banks are taking so as to bail US out of it.

Answer: Large banks made loans to people who could not afford them and now those homes are being foreclosed on.

They gave people with less than average credit "sub-prime" loans and often stipulated an adjustable rate mortgage or some other line that could cause their payments to increase. These banks are not getting their money because people are defaulting.

To bail out of this, the Federal reserve keeps lowering the rate at which banks borrow money. Basically, the fed is a bank that has the exclusive right to print money then loan it to banks at an interest and then the banks loan it to you at an even greater interest. So they are trying to keep the economy stimulated by lowering their rates to keep bank rates low.

The dollar has slumped. There are some economies that 1) assign fed rate cuts or raises along with what OUR fed does and 2) some nations fix their currency by the buying and selling of ours. Since our dollar is decreasing and value and the future of this problem is unknown, people are trying to unpeg their currency or fed rates with ours.

The economy LOOKS good because the low dollar actually increases exports because our goods are cheaper abroad. This hurts us badly in importing as it takes more dollars to buy goods abroad.

Thank Alan Greenspan because he did not address this issue. Everyone says he's great but the jury is still out on that. He basically bails out investors when they are having a tough time which causes a moral hazard. If they believe they will always be bailed out, what gives them the incentive to invest wisely?

That is all I know.. hope this helps

US Recession? Jim Rogers Interview January 2008

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