fifteen tons

9/29/08

Today was that day, perhaps the one you’re asked about many years from now, questions from your kids forced to study economics and realizing something huge happened when they were still children. The best answer I’ll conjure up is something like “man, I dunno – it was complicated.”

As best I can tell, this is what happened (and please, if I’m getting this wrong, please correct me):

1. People without any real money bought houses they couldn’t afford.

2. They could do so because banks were lending them money with no downpayment and crazy low interest rates and no stringent credit checks.

3. The banks figured they could do this, because housing prices always go up.

4. Now the banks have shitty loans, which they sell to investment banks on Wall Street who figure they can make a buck off them too – because housing prices always go up.

5. The banks then sell these shitty loan mortgages to everyone else looking for a safe investment, rating them misleadingly, and using offshore accounts so nobody could see what they were up to. Who cares? Housing prices always go up!

6. Housing prices don’t go up. In fact, the bottom kinda falls out.

7. People who ultimately bought these “safe investments” wonder where the money is, but all the ORIGINAL homeowners (from number 1 above) have foreclosed. The banks say to their disgruntled customers, “well, we never promised you a rose garden.”

8. The truth comes out, and all these banks – and everyone associated with them – lose stock value so rapidly that the shareholders revolt.

9. Now there’s no more money and no more credit being given. Without credit, the entire financial sector loses their oxygen, and the whole fucker slams to a halt.

10. The Government ponders a bailout plan to shore these banks back up and get credit flowing again.

12. The bailout plan fails because some Republicans believe it goes against their small-government philosophy, and some Democrats believe it wouldn’t actually change the way these banks behave, it would reward the people who fucked up, and the taxpayer wouldn’t share enough in future earnings.

Then the Dow falls off a cliff. Is that basically what all of you believe happened? If not, what is your take? And what happens now?