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Money Video
- Thread starter 30 dirty years
- Start date
australian pete
Senior Member
too complex for me, if there is no debt there will be no money ? then nobody could buy anything ? should i go and borrow lots of money which in turn creates 9 times as much money ? if that is true we should all go and borrow as much as possible then we will all have 9 times as much money as we do now??
30 dirty years
Well-Known Member
LOL, I think that is what we have done Pete and there is no more equity left in the US to borrow any more money on.
australian pete
Senior Member
your probably correct and i think the real problem is that the paper shufflers on wall street (and similar places worldwide ) were the ones who kept multipling the money and then they did the magician act and managed to make most of it disapear, hopefully the real workers of the world like us will be able to make it come back.. keep smiling and keep working.:usa
CM1995
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I think that the theory proposed in the video is that our money is backed by debt instead of gold or silver. The paper money's value is as much as the ability of "borrowers" to pay back the "debt" associated to that value.
Since most of the world's money supply is not backed by precious metals anymore, most of the global economy works in this fashion. Our monetary system has operated this way ever since we were taken off the gold standard (http://en.wikipedia.org/wiki/Gold_standard) by President Wilson (http://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System).
This is not the same as what the Wall Street hustlers did with sub-prime mortgages, although it is the idea of fractionalized banking or rather fractionlized borrowing. The guys on Wall Street basically "sold" mortages to folks that in reality could not pay for the amount of house they were buying. These loans were then rated by "professionals" as being better than what they really were, as concerning the ability of the borrower to pay the loan back. Investors were reaping nice rewards up front and always looking at the returns these loans promised to give, especially when the rates re-set to a higher %.
There became an insatiable investor appetite for these investments (mortgage loans) due to the higher returns and a hot housing market. Wall Street then packaged some of the bad loans (that were already rated "good" at this time) with normal conforming loans and sold them as packages to investment banks, investors, etc. These loans were packaged and bundled so many times, the true value of the "investment" was assumed to be good. The problem that brought down the major players in the banking industry was when the sub-prime loans started to default (August 2007), no-one in the banking industry really new, at that time, how far and how deep the bad loans went. We all found out how far they did reach last Sept.
Now enter fractionilized borrowing or leveraging. They took the "value" of their portfolio, which contained these over-rated loans, and borrowed or leveraged against it. They borrowed money against there portfolios to invest in more of these types of loans. It would be like borrowing $100K against a dozer you either said or actually thought was worth $200K. With that $100K you went and bought a trackhoe for $100K. The problem arises is when work slows down and you find out that the original dozer was not worth $200K but $50K or less and the trackhoe you bought with fractionlized debt is only worth $30K. Things will tend to unravel at that point.:cool2
Since most of the world's money supply is not backed by precious metals anymore, most of the global economy works in this fashion. Our monetary system has operated this way ever since we were taken off the gold standard (http://en.wikipedia.org/wiki/Gold_standard) by President Wilson (http://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System).
This is not the same as what the Wall Street hustlers did with sub-prime mortgages, although it is the idea of fractionalized banking or rather fractionlized borrowing. The guys on Wall Street basically "sold" mortages to folks that in reality could not pay for the amount of house they were buying. These loans were then rated by "professionals" as being better than what they really were, as concerning the ability of the borrower to pay the loan back. Investors were reaping nice rewards up front and always looking at the returns these loans promised to give, especially when the rates re-set to a higher %.
There became an insatiable investor appetite for these investments (mortgage loans) due to the higher returns and a hot housing market. Wall Street then packaged some of the bad loans (that were already rated "good" at this time) with normal conforming loans and sold them as packages to investment banks, investors, etc. These loans were packaged and bundled so many times, the true value of the "investment" was assumed to be good. The problem that brought down the major players in the banking industry was when the sub-prime loans started to default (August 2007), no-one in the banking industry really new, at that time, how far and how deep the bad loans went. We all found out how far they did reach last Sept.
Now enter fractionilized borrowing or leveraging. They took the "value" of their portfolio, which contained these over-rated loans, and borrowed or leveraged against it. They borrowed money against there portfolios to invest in more of these types of loans. It would be like borrowing $100K against a dozer you either said or actually thought was worth $200K. With that $100K you went and bought a trackhoe for $100K. The problem arises is when work slows down and you find out that the original dozer was not worth $200K but $50K or less and the trackhoe you bought with fractionlized debt is only worth $30K. Things will tend to unravel at that point.:cool2
australian pete
Senior Member
cm1995, that is a good, simple explanation , that is how i understand it.the amazing part is that so many large and supposedly smart financial institutions apparently thought it would never end, this financial crisis is the worst and dumbest i have seen in my 58 years, i am an optimist however my optimism is being really stretched, i just keep thinking all booms end (that has happened) and all recession end and are followed by some good years, i am hoping the recession ends soon but i am not feeling real confident about soon.