The talk for the last week has been the impending meltdown of the United States financial system.
I'm a pretty smart person. I try to keep up with the news, more than most Americans I think, and probably to my emotional detriment. On the other hand, I was never a very interested student during school, and I tend to have little interest or aptitude for financial matters.
As far as the financial crisis goes, I have to admit, I just don't get it. I'm not trying to be a smart-ass, and this isn't a rhetorical device to make a point. I honestly don't understand the crisis.
As far as I can tell, on a huge scale, enormous banks made a lot of unwise loans, to people that were unlikely to be able to meet their obligations and pay off the loans for their houses. Then, a too-large number of those borrowers were unable to pay the loans, and those unfortunate people lost their homes when the banks foreclosed.
So at this point in the story, the banks now have a bunch of homes, when they'd prefer to have money. And a bunch of people have to find somewhere to live.
This scenario resulted in a bunch of banks facing bankruptcy, or needing to sell themselves to somebody with deeper pockets.
Question: I have no connection to the in-trouble bank. Why/how does this affect me? Other than a general sense of compassion for a failing business and the soon-to-be-out-of-work bank employees, why would I care? Bad stuff happens all the time; what makes this a special case?
OR: I do have dealings with the bank. I'm a borrower - undoubtedly somebody else will buy the loan, so I still need to make my payments - how am I affected?
OR: I do have dealings with the bank. I'm a depositor - the FDIC will cover me up to $100,000/account, right? And if I've somehow acquired that much moolah, surely I'm sensible enough to not keep more than $100,000 in any single account, I'd think. So, again, where's the problem?
Given the above, what's the rationale for the government to step in and give $700 Billion to the banks? The Daily Show last night played a clip from, I think CNN, stating that amount equates to 2000 McDonalds apple pies *per US citizen*. I think the apple pies run 2 for a dollar. If so, and if my off-the-cuff math is correct, that works out to $1000/person.
Seems to me, IF Congress and the rodents at 1600 Pennsylvania Ave can give out $700B to help the economy, sending $1000 to every taxpayer in the country would probably stimulate the economy, and help substantially more than giving that amount to Lehman and JP Morgan.
Again, I really don't know what I'm talking about here, and to be fair I haven't taken any time at all to try and learn about the problem yet. I've been busy, and the idea of reading economics webpages sounds about as much fun as washing the paint out of a roller after painting my den.
But sooner or later I guess I'll have to read up on this, just so I'm not ignorant when I hear the economic disaster discussed in my presence.
In a more perfect world, the crisis discussed around the water cooler would be the failure of the Sega Dreamcast, or the inability of the Saints to put Denver away last week. Oh well...
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