As someone who doesn't always understand situations until they are "boiled down", I figure there are a few out there who would appreciate what this post had to say:
http://dyn.politico.com/members/forums/thread.cfm?catid=1&subcatid=3&threadid=1527098&start=1over the past two weeks I have listened in amazement to all the major news outlets tell the american people they cannot possible understand what is happening on wall street. we simple need to trust the people in charge. okay, but ; I submit that the banking problem is not difficult to understand. it is in fact very easy to understand and the reason no one is explaining what happened is because the country would be outraged. let me explain it. let me explain it with an example using simple numbers. lets say a bank has a millions on deposit. that means it can lend a million dollars if it secures collateral to secure the loan. so in simple terms a bank that has a million dollars can offer loans for 100 homes worth 100,000 each. when you come in for the loan the bank pays either the builder or the former owner the $100,000. then you pay back the loan with interest. the interest is the profit for the bank and as the bank makes loans the value of the banks stock goes up based on the interest due. these loans are secure because if you default on the loan the bank can repossess your home and sell it to someone else and there is no threat to the original investment. this process used to be strictly regulated by the federal government. then along came george bush., who said the banks don't need regulations; we will let them do whatever they want, and because most bankers are white male republicans, letting them do what they want will be good for the economy. so the federal reserve bank, which is a key player in all of this, said banks are now free to lay off their loans. what does that mean? it means if you go to a bank and ask for $100,000 the bank can pay the buyer or the previous owner, then they can sell the loan to a third party. so using our original example, if a bank had a million dollars in deposits before george bush they could make 100 loans for 100,000 dollars, and the 100,000 dollars was secured by 100,000 worth of real property. with no regulations, the banks can now make unlimited loans and it does not matter how much money they have or how much collateral they have. what typically happened is the banks sold the loans to china. this means the bankers were paid the 100,000 by chinese banks plus half the interest and the chinese bank keep the other half of the interest. so for example a bank with a million dollars in deposits could easily make two million dollars in loans. the SEC removed its regulations of the banks so that the bank could say that it was worth two million dollars, which then doubles the value of the banks stock and most of that stock is owned by the bank executives. so what happened ? the courts in the United States rules that laying off loans in this manor was illegal and that the second party bank (in this case the chinese banks) had no legal claim on the collateral for the loan. what does that mean? its real real simple: if you buy a home and the bank sells your loan and you stop payment on the loan the bank cannot repossess your home. you cannot lose your home. no one can do anything about it. that is the current legal situation. okay so that means chinese banks have close to a trillion dollars in worthless loans based on the decisions of the courts those loans have no value. the reason they have no value is because the secondary bank cannot foreclose on the home and take possession of the home based on failure to pay the loan. so the banks sold china commercial paper that has no value, based on the laws of the united states when you sell something that has no value and you represent the idea that what you sell has value you are committing a crime. the crime is called fraud. what the banks did is no different than if I were to sell you the brooklyn bridge. same thing so in very simple terms that everyone can understand despite what the news tells us, every major banking institution in the country has committed massive fraud. fraud worth more than a $1000 is a felony punishable by ten years in jail. because home loans are typically for more than a $1000 every banker in this country faces serious jail time. but only if the justice department has the courage to take action. in my experience the justice department takes the position that it is not possible for white republicans to commit crimes. the justice department believes that criminal behavior is limited to non europeans, so don't expect any massive arrests.
Thanks goes to "boricuaogun" at politico.com for helping to clear the air of any possible confusion!
*edited for grammar*
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