Bailout bill 101

Discussion in 'Economy' started by DavidS, Sep 29, 2008.

  1. DavidS
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    DavidS Anti-Tea Party Member

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    Ok, so there's a lot of mis-information going on right now and I think it's time to seperate the facts from the fiction.

    Let's take $100 and a farmer. The farmer goes to his bank and he asks to borrow $100 from his bank. The bank puts a 7% interest rate on that $100 plus a $5 fee. So the bank makes back $107, or a 7% profit plus a $5 fee. The farmer decides to go out and buy seeds, a tractor and pesticide with the $100 from other small businsses. The farmer grows a new crop of fruits with that money and sells enough of fruit to pay the bank back. The seed company sees the demand for rasberry bushes because of a new study about how good for you raspberries are and decides to go his bank and borrow $100 to invest in more raspberry seeds to sell to more farmers. That bank borrows $100 from the farmers bank. The farmers bank puts a 5% interest raste on the $100. Both the tractor company and the pesticide company go out and each get loans to expand their businesses as well and their banks borrow from the farmers banks. That $100 that the farmer used has made his bank over $1000. And each of the other banks are loaning money to each other for other loans and are each making money off of the loans.

    What's going on right now is that a majority of the loans banks made during the housing bubble have gone bad and those banks haven't gotten their money back. In fact, those banks owe so much money now, they're collpasing. That farmer can't get a loan anymore and none of those other companies can get a loan either. One of those companies has to start slashing jobs because they can't get financing to expand their business. So unemployment goes up. People don't have jobs so they stop buying products unless they absolutely need them. Businesses have less income and have to start slashing MORE jobs. The more jobs that small businsses slash, the less consumers will spend. This is an endless cycle until there are no more businesses and the economy completely collpases in on itself and the dollar is worth nothing. Of course if businesses have less revenue, they will raise prices. That's called inflation - the cost of them being able to do business rises so they pass on their cost to the consumer. What ALSO is going on is that we have historic DEFLATION in the housing market. We have inflation, defleation and the GDP will retract. If the GDP retracts between .1 and 9.9%, for two quarters in a row, we have a recession. If the GDP retracts over 9.9%, we will be in an economic depression.

    What the federal government wanted to do today was buy the bad loans the banks made so the banks could start loaning money not only to consumers but also to each other again. The failure of the passage of this bill means that banks will continue to slow down if not outright halt ALL loaning to each other.
     
  2. CA95380
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    CA95380 USMB Member

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    This is bad or this is good?

    Okay, so what is next? Bail out of Creditcard Companies?
    Discover, Citi Bank, Chase, Bank of America, American Express Cards,etc?

    Plus all of those companies that plaster websites that advertise for people that have little or no credit?? Now they should be real stable? :doubt:

    :eusa_shhh: Run up your credit card purchases people! Max them puppies out!!! A bailout is on the way!!!! :eek:
     
  3. DavidS
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    DavidS Anti-Tea Party Member

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    Are you mature enough to comprehend the dire situation at hand? I think not. :confused:
     

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