The truth, the whole truth and nothing but the truth.
Following on in the series on what I have learned in the recent recession:
Conclusion 2: The truth is the hardest thing to admit
As banks were issuing massive amounts of debt the real estate market kept picking up. The higher the prices went the more people could justify to themselves that thy should jump on the bandwagon. The more people that joined in, the more prices picked up and the more paper debt was created.
At some point in 2007 one bright spark in America had a monumental revelation. Much like Sir Issac Newton sitting under an apple tree he realised that what goes up must come down. Unable to contain his fear he rushed to put his house on the market. Word spread like wildfire and soon enough the entire population was gripped by fear and many rushed to sell their houses. With so much stock on the market the housing prices began to collapse and many people found themselves in negative equity.
The institutions which were lending money to the housing market (which had names worthy of characters in a Disney animated feature - Fannie Mae & Freddie Mac) all of a sudden found that the people borrowing from them now no longer had the assets they said they had. And before you knew it the housing market was reduced to a house of cards.
Next up were the bankers. Their book values were built up on the value of the assets they were lending on which were in a state of free fall. One of America's largest banks called Lehman Brothers suffered a run on its assets and for the most part was gifted to Barlcays Bank, in a pseudo bail-out giveaway. Something had to be done urgently. All eyes were on the president.
At this point, one serious problem raised its ugly head. It was obvious that the Federal Reserve would have to come up with more money but how could they explain the fact that they were about to print one trillion more dollars? After all, up to that point the majority of us actually believed that the money had some real value. If it became obvious that it has less intrinsic value than a kid with a serious low self esteem problem then the consequences could have been even worse.
So there was only one solution. To tell the nation that the U.S. government were going to invest more money to support the nation's tax dollars when he meant to say invent it.
... continue to Conclusion 3
Conclusion 2: The truth is the hardest thing to admit
As banks were issuing massive amounts of debt the real estate market kept picking up. The higher the prices went the more people could justify to themselves that thy should jump on the bandwagon. The more people that joined in, the more prices picked up and the more paper debt was created.
At some point in 2007 one bright spark in America had a monumental revelation. Much like Sir Issac Newton sitting under an apple tree he realised that what goes up must come down. Unable to contain his fear he rushed to put his house on the market. Word spread like wildfire and soon enough the entire population was gripped by fear and many rushed to sell their houses. With so much stock on the market the housing prices began to collapse and many people found themselves in negative equity.
The institutions which were lending money to the housing market (which had names worthy of characters in a Disney animated feature - Fannie Mae & Freddie Mac) all of a sudden found that the people borrowing from them now no longer had the assets they said they had. And before you knew it the housing market was reduced to a house of cards.
Next up were the bankers. Their book values were built up on the value of the assets they were lending on which were in a state of free fall. One of America's largest banks called Lehman Brothers suffered a run on its assets and for the most part was gifted to Barlcays Bank, in a pseudo bail-out giveaway. Something had to be done urgently. All eyes were on the president.
At this point, one serious problem raised its ugly head. It was obvious that the Federal Reserve would have to come up with more money but how could they explain the fact that they were about to print one trillion more dollars? After all, up to that point the majority of us actually believed that the money had some real value. If it became obvious that it has less intrinsic value than a kid with a serious low self esteem problem then the consequences could have been even worse.
So there was only one solution. To tell the nation that the U.S. government were going to invest more money to support the nation's tax dollars when he meant to say invent it.
... continue to Conclusion 3
