Wednesday, September 14, 2011

Can you see the REAL reason behind today's economy crisis ?

Sub Prime crisis is not new now, most people would know why it happens, this is just another video about it.  But I am just curious how many of us can answer this question ...

First watch this video if you don't know why sub prime crisis happen ( the reason that triggers today world economy collapse ! )

In short, it says ...

  • home owner buy a $100k house but has no money
  • home owner borrow money from lender by mortgaging the house to the lender
  • home owner has to pay $200k to the lender in 30 years
  • investment banker get loan and buy the mortgage from the lender for $220k
  • investment banker turns the mortgages into another finance tool
  • investment banker sell this finance tool to investors
  • investors get good returns
  • investment banker receive money from investors and home owner, pay his loan and still earn
  • if home owner default in payment, investment banker take the house, resell to another home owner
  • cycle continues, almost everyone earns except the defaulters, which is really their own faults.
Now, the video says the turning point is when we start to sell the house to the sub-prime home owners, which are the people who are less rich and most likely unable to repay their debts.  But what do you think ? What has really gone wrong in this cycle ?

Understand this truly may open our eyes to recognize the fact that not only properties, but almost everywhere in today's finance ecology, similar 'time bombs' are being created and rebuilt every single day.

What do you think has really gone wrong in above point by point list of narration ?


Alvin Lim said...

Everything is like a cycle, and our world economy is no exception. This borrow from that, and that borrow from another, so on and so forth. So when one screwed up, the effect will likely snowball.

At the end of the day, everyone will try not to be the last person to get squashed by the big snowball :P

ChampDog said...

Sounds like a MLM?

Michael Tsen said...

well said !