The Recession Doesn’t Dance Either

Today. I want to be Suzie Orman and educate you poor people about money. (For the record I’m poor too and I failed both Accounting and Economics in undergrad…)

I got a "D" in AP Econ too...

Do you really understand this economic recession? And do you fully understand how are banking system works? Below I am supplying you with complete answers for both!

First: How did we get into this recession?

Stage 1: The Beginning
In late 2001 the housing market began to pick up due to the fact there was a lot of home financing options that could get almost ANYONE into a home.

Stage 2: The Set Up
As each year passed, we saw drastic increases in home values which made home ownership more attractive and popular however a lot of people were not able to get normal bank loans because of credit history or the inability to prove income or “the ability to pay”.

Stage 3: The Bastard Idiots
Here comes the SUBPRIME MORTGAGE INDUSTRY. This was basically a large group of banks allowed financing to people regardless of their credit and 9 times out of ten they could avoid proving income. They didn’t even have to bring money to closing (which inflated home values even more because people weren’t putting real money into buying these homes)

Stage 4: The Time Bombs
These companies were giving away loans at HIGH INTEREST RATES AND RIDICULOUS CLOSING COST WITH PAYMENTS TO DOUBLE AFTER 2 YEARS.

Stage 5: The Rich Bastard Idiots
These high interest rate mortgages along with a rising housing market accompanied by a weak stock market became an attractive ALTERNATIVE INVESTMENT… And here is where it gets fun. Now we have billion dollar investment banking firms (Bear Stearns, Lehman Brothers, so on and so on) buying this mortgage debt because the return on investment made their greedy mouths water.

Stage 6: The Perfect Storm
These people that should have NEVER gotten the loans realized they could not afford the high rate mortgages especially after a few years when these time bomb mortgage payments doubled. These subprime loans even made it difficult for customer to refinance to a new loan by charging them thousands of dollars to pay off their loans early (prepayment penalties). These mortgages started going bad rapidly. At the same time people slowed down in purchasing houses. Values dropped, more and more homeowners began to default on their mortgages to the point where mortgage companies where foreclosing them so much it was putting them out of business. Then all that mortgage paper became TOXIC investments meaning it costs you money if you owned these mortgages.

FINAL STAGE: The Outcome
Q: So who owns these toxic mortgages?
A: Our biggest billion dollar investment banking firms.

When these giants toppled it affected the ability for other businesses to obtain credit to operate. Now businesses are firing people because they can’t afford them. Now people can’t buy homes because of no jobs and banks are more strict than ever. And it’s now a big circle of big business that never put enough away for a raining day and now the government is literally printing money that we as tax payers are holding the check for. (All credit for this information goes to Mr Official).

Ok. So if you are still a little confused or hungry for more information about YOUR money, take a look at how our flawed banking system actually works. It is set up to continue this cycle of surplus and recession IE this will not be the last time we have a bad economy.

Isn’t that jacked up? Obama… The party is over dude.Tweet