The Energon Pub

I'm not up on the whole financial world thing. At all.

Can some one explain to me in the simplest, most dumbed-down way exactly whats what and whats going on with it. I feel like I should have an opinion on the matter.

Well, in order to show it properly. You can perform this example yourself.

Get yourself a broom, you'll need the wooden handle.

Then get yourself a bagel, or some other item with a hole. This item will represent the economy, namely the ass of the economy.


Take broom handle, insert into hole.


The economy got #$%^ed.
So now the stock market is #$%^ed.
The failing banks are becoming federal or being bought out by foreign companies.
The government wants to use money we may not even have from the federal reserve to bail out the market. This could result in the worst bounced check ever.

So essentially, we're @#$%ed.

Senor Hugo wrote:Well, in order to show it properly. You can perform this example yourself.

Get yourself a broom, you'll need the wooden handle.

Then get yourself a bagel, or some other item with a hole. This item will represent the economy, namely the ass of the economy.


Take broom handle, insert into hole.


The economy got #$%^ed.
So now the stock market is #$%^ed.
The failing banks are becoming federal or being bought out by foreign companies.
The government wants to use money we may not even have from the federal reserve to bail out the market. This could result in the worst bounced check ever.

So essentially, we're @#$%ed.

I lol'd. Hard.

But, um. Stock market? I mean this is how ignorant I am of the whole thing. The banks? The federal reserve?

The Federal Reserve: There the US Government keeps it's stockpile of gold.

The Stockmarket: Place on wall-street where people trade the stocks of different companies, trade-good, services. For instance, you could end up buying stocks of Hasbro.

The Banks: Banks in the US that give out loans, save money etc. They are going down the crapper financially.

Senor Hugo wrote:The Federal Reserve: There the US Government keeps it's stockpile of gold.

The Stockmarket: Place on wall-street where people trade the stocks of different companies, trade-good, services. For instance, you could end up buying stocks of Hasbro.

The Banks: Banks in the US that give out loans, save money etc. They are going down the crapper financially.

Okay so I have all the pieces... How do they fit together?

And what are stocks an shares an all that stuff?

I prolly look a total prat asking about this stuff but its been coming up more and more in my life and I figure I need to get smart about it.

Wikipedia - Financial Crisis they give a pretty good explanation of what a financial crisis is. I'll post more when I get done with classes.

But to explain the stocks

1 Stock = 1 share of a company, depending on how many shares of stock you own, you have a percentage that you own of the company.

Here you go:

http://docs.google.com/TeamPresent?doci ... pauth=true

That was a pretty entertaining slide show and I'm STARTING to get it.

I'm looking at these Wiki pages but I keep seeing all these specialist terms for things which I of course follow on to and then I can't go back and pick up where I left off cos I lost the flow of things. Every page I come to has more words for me to chase up.

Not to mention that the idiot next door has decided it's deathly important that he and his punk band make as much noise as possible. Goddamn.

Oh well. I'm gonna keep trying anyway. Too much free time an all that...

From what I have heard it started when the banks were giving out loans to people who could not afford the dream house so the banks gave them loans that re adjusted in 5 years. A lot of people built up debt that drove their credit score down. When the loan re adjusted the intrest went up due to their lower credit score. So a lot of people are loosing their houses all at once. Add in super high gas prices and a low dollar value means not many can afford to buy the forclosed homes. The banks are starting to fail. About 4 months ago I asked a friend if we have seen the end of this when the first 2 banks went under. She said no way we are just seeing the tip of the ice burg.

Missourisnowflakes wrote:From what I have heard it started when the banks were giving out loans to people who could not afford the dream house so the banks gave them loans that re adjusted in 5 years. A lot of people built up debt that drove their credit score down. When the loan re adjusted the intrest went up due to their lower credit score. So a lot of people are loosing their houses all at once. Add in super high gas prices and a low dollar value means not many can afford to buy the forclosed homes. The banks are starting to fail. About 4 months ago I asked a friend if we have seen the end of this when the first 2 banks went under. She said no way we are just seeing the tip of the ice burg.

Okay. Whats a credit score? Sounds like a thing to say how likely you are to repay a loan or something. Whats the readjustment thing in the loans about?

And how did this lead to the mass of other things going on right now?

And whats this about individuals getting bonuses or something? That sounded like something I want to be angry about.

Credit score is a number that banks look at to see if you are a good risk. If you pay all you bills on time etc etc... Some banks were lending money to people with lower credit scores with an introductery low intrest rate for 5 years. When a loan re adjusts is when they look at a persons credit score again to see if they can mantain the low intrest rate or if it will go up. When I was getting my home loan the lender told me he put some people in those kinds of loans. He said he strongly warned then to work on their credit or they will not be able to afford their house in 5 years. The people did not heed the warning so here we are.

i hate politics even more from reading that stuff

I cant wait for the election to be over so I can quit seeing those political commercials.

Meverix wrote:And whats this about individuals getting bonuses or something? That sounded like something I want to be angry about.

Being from the UK, I think I know what you're wanting to know about this for, as its been all over the BBC and ITV.

Basically, people were being rewarded with huuuuge bonuses (think the average yearly wage of someone in the UK, but earned in 1 day rather than over the year) for making high risk moves, such as investing in banks that had given mortgages to loads of people who can't afford them thanks to our ridiculously high house prices, without looking at what may happen in the long term. I think that's the gist of it, but its far too complicated for mere serfs like me to fully understand

The world is a crazy place, really. Don't worry though, the rich will be just fine.

With the absurd greed driven cost of living punishing every day people coupled with the insanely inflated housing market, is it any wonder things are going down the crapper? Anyone who didn't see the house of cards coming crashing down is a total idiot.

Tekka wrote:The world is a crazy place, really. Don't worry though, the rich will be just fine.

With the absurd greed driven cost of living punishing every day people coupled with the insanely inflated housing market, is it any wonder things are going down the crapper? Anyone who didn't see the house of cards coming crashing down is a total idiot.

Yeah, I'm quite pleased that it has finally happened - maybe I'll actually be able to move out of my parents house and stay in York before I'm 50

Tekka wrote:The world is a crazy place, really. Don't worry though, the rich will be just fine.

With the absurd greed driven cost of living punishing every day people coupled with the insanely inflated housing market, is it any wonder things are going down the crapper? Anyone who didn't see the house of cards coming crashing down is a total idiot.

The cost of food here has doubled. Heat fuel and electricity costs are soaring but we have no raise in pay.
Yes the rich will be just fine while regular working families struggle to pay the bills.

Does anyone else laugh/get angry at the idiots that have $10,000 or more on their credit cards?

That's the main problem in my eyes. Our economy surged because of indulgent spending encouraged by the Administration after 9/11, most of which used credit. Now the credit is maxed out and gone, and we're in a bust. Not only the indulgent spending disappeared, but most of the normal spending. Several factors such as interest, inflation, weak dollar, and fuel have chipped away family budgets and now the economy is shrinking.

As the economy shrinks, think of it as a tooth paste tube. As it is squeezed, paste comes out. The squeezing is the economy shrinking. The paste that comes out are bankrupt or failed companies. Now think of this. If you continue squeezing, the tooth paste will eventually run out and all the companies will crumble (a Depression). So basically, it's the government's job to relieve the pressure, but at the same time, make sure we're able to still brush our teeth.

The Great Depression was caused by people using credit to buy stock, The Great Recession (Perhaps even Depression II) will blame consumers for using credit to buy everything else.

Hilariously after reading through this I just saw an American Express card.... It was for businesses and had no limit.

Thank God that I have barely anything put away at the moment and that my job is in a market that is still booming. Yay for consulting!

We are actually doing better now then we did during the supposed good times. My husband has a great paying job. We were planning on buying a house and keeping our present one for a rental but the recent string of failures scared us into staying put. We know we can get a loan so there is no harm in waiting.
I could not imagine 10,000 in credit card debt. We panic at 1,000 even knowing it can easily be paid for in a short time. Even though 10,000 is alot of some people to others it is nothing. My father in law paid 30,000 dollars for my sister in laws wedding and did not bat a eyelash at it. They have money but he worked hard and was very wise with investing and saving. They do not give us money but they did set up accounts for my kids that will either pay for or mostly pay for college.

Having worked in investment banking I'm probably able to explain this on a level every should get as I struggled for months listening to jargon before I got the big picture.

It all starts off with company A having saying £1million in capital

They will only loan to safe, low risk borrowers, such as people with steady jobs and good credit scores. The will charge a minimal amount of repayments as these borrowers really can go anywhere, so they dont want to lose custom. So company A will make a steady and secure return on their £1million of capital, and as a result people will feel safe investing in them as they know there stock is safe.

Now take company B who also have £1million in capital.

These people target borrowers who are maybe unemployed, in unstable jobs, have bad payment history. These people cannot get credit in most normal places so the company can charge extortionate rates for repayments to these people to justify the risk of lending to them. The result for this is that they make a hell of a lot more on their capital, even with the percentage that default (dont pay) they still will make more than company A.

The result of this is that they rely on stocks and share investments as they cannot predict the income based on repayments, shareholders get better returns on their money as its a riskier investment.

This is all fine and dandy until we have a few wars and the like and the economy gets into debt and the currency get weaker, the economy suffers so you see more companies who rely on international trade make lay offs.

With more lay offs you have more people missing payments and needing to turn to these high interest rate and high risk lenders. Presently we have more people than ever defaulting on payments, which normally the bank can handle. However it gets to a point where the company (bank) doesnt have enough money to operate on a daily basis and cannot get the money in fast enough.

The following happens in very short order

Bank starts to borrow more from other banks to pay off short term debt

Shareholders cash in shares for fear of the price going down (bank has even less money) Or in the case of Northern Rock, people withdraw all their savings...same effect

The media hypes it up and people lose faith in the company

The company has to engage in higher risk to generate the enormous short term capital it needs to avoid going bust or being bought out.


Now generally this will only happen to one or two companies in a short space of time, at the moment its having a knock on effect where eveyone is going bust and huge coorporations are buying them up at knockdown prices or merging with rivals to increase the collective capital.

The key thing to remember is, the bigger your capital reserves and "balance sheets" the more you can afford to loose short term as you can still operate at a loss while you pursue the debt and eventually recover it.

The sad fact is that as companies start to go down, people abandon them and make matters worse (not judging them as it might be their life savings on the line)

The other bad thing is companies comitting huge frauds to close deals and make the short term money, or short selling shares to drive the price down, which is what caused Lehman Brothers to go under and get bought out by those heartless bunch of bankers Barclays.

Trust me when I say we are going to see things go a fair bit worse before they get better. I can see a few more mergers to help the short term problem, but this will sadly result in a monopoly on the markets which doesnt help us the consumers when there are only a few giant high street banks 5 years down the line.

Right Credit Crunch 101 class is over...any more questions see me afterwards

that's pretty much my understanding of it too Sky shadow primus but i'll just add in a little if i may; if things get bad enough the goverments have to bail out they're finiacial institutions, and for this they generally print off more money(pretty much out of thin air) which devalues the currency, which contributes to the increase in the prices of everything your country is not self sufficient for, which is pretty much everything, so if your company is manufacturing the raw materials price goes up, your account balance hasn't changed, so you have to increase the prices of your finished product(this is inflation), which could be a raw material for another comapny, or a finished product, eventually the consumer pays more, but becuase they do, they buy less, so the company makes less, and earns less, (which is recession)

Skyshadowprimus explained it reeaaal well. Realy getting it.

Can someone explain though all this stuff about the currency getting devalued? How does that happen? I really don't know anything about exchange rates or the 'strength' of a currency over another.

For the first time in my life, Im actually glad I have no savings.

What pisses me off the most is that my town still things it's ok to raise property tax. The average property tax is $15,000 a year. Have they not realized they are driving people out and lwering their revenue?