Financial crisis

The fallout from the US financial crisis is painfully obvious in everyone's stock and 401k statements. November's 401k statements are going to be released on the 3rd, one day before the elections and speculation is rife that people are going to vote in an angry frame of mind.

Some food for thought; financial companies, when they were making money hand over fist, didn't come to taxpayers and say that "hey fellow citizens, we're making some good money and would like to share some of it with you". What now, gives them the gall to come and assert that in their times of debt, the taxpayers should dig the hole deeper to bail them out?

Lehman Brothers and their story of failure is as bizarre as it gets, but then having lived here in America for the last few years, Ive realized that scams happen at grander scales here and the only difference is that white collar Ivy leaguers are running them and they are legalized under terminology like derivatives.

To take a quick example, imagine that you have a fixed deposit/certificate of deposit (CD) of $1000. You borrow $1000 of liquid cash from someone with the CD held as collateral. Now you show this $1000 of collateral to 9 other parties and borrow an equal amount from each, ending up with $10,000 in cash to make money with. In any kind of economy, this represents a credit balloon; you have borrowed grossly above what you are worth or are capable of paying back if even 20% of the creditors called in on their credit.

Another contributing factor to the crisis is the concept of NINJA loans (No Income, No Job, No Assets). What follows is the hypothetical thought process of a NINJA homeowner:

I aint got a job, nor any assets nor a decent credit history but this hot shot banker guy (mortgage broker) is offering me a $500,000 mortgage on easy terms.

Lets see, if I take this loan and buy this house, I can find 5 guys to rent a room each and pay off my mortgage for me. If I can make this last for 2 years, I can pretty much live free. Heck, even if I lose 2 renters and foreclose, Ill just go get another loan from that banker guy...its not like they care about bad credit anyway!!