Can someone with economic knowledge please fill us in on EXACTLY what is happening

[LibraLiz1973]

and what the short and long term ramifications are of this?

[SallyMander]

1. Word... i'd also like to know how Kucinich voted

??

[mamalone]

2. Totally clueless here...

But I am greatly looking forward to the answers you'll get.

[LibraLiz1973]

3. me too!

[WCGreen]

4. Basically, there are too many worthless debts on the books of

major financial institutions.

They have a certain amount of debt that they are holding as assets, stuff owed to them. They origially booked it at 100% of value.

Now, with so many of the debts based on worhtless mortgage contracts, they have to write down those assets which effects that institutions credit rating with other institutions.

So credit is hard to come by.

That means the cost of credit goes up all across the market since there are more people in need of short term loans than there are short term loans available, supply and demand.

Now a lot of businesses rely on short term "bridge" loans to make payroll and inventory obligations. What this does is raise the cost of those loans so high that they are out of the reach of many small businesses and so they have to tap their capital reserves which causes the stock to drop.

That's pretty much it in a nutshell.

Of course it's more complicated when derivitives and bundling are added in, but the bottom line is the availability of credit is vanishing.

[slick8790]

5. Good explanation.

I've been trying to explain in simple terms to people I know and this is the best job so far I've seen.

[WCGreen]

Why thank you....

[LibraLiz1973]

6. Thank you for that explanation. I understood it!!!

:wave:

[ejbr]

11. Can I ask a followup?

What about the notion of reducing the bailout from 700 billion to 190 billion like Charles "Mukasey is the best we are gonna get" Schumer suggests until another administration enters the picture?

[WCGreen]

15. It's beyond that now...

There are just too much worthless paper on the books of too many financial institutions...

I was never convinced that the bill was more than a symbolic gesture to calm the financial markets...

[4lbs]

16. That's what this latest bill that was just voted down would have done!

It authorized $250 billion immediately.

Then next year, the new President of the U.S. (Obama) can review and authorize another $100 billion.

After that, the final $350 billion is placed under Congressional review, and the Congress votes whether or not to allow the final $350 billion, or even a smaller portion.

[Hope08]

12. Excellent explanation

[Hope08]

14. By the way . . .

if you want to understand how we got to where we are, check out this link to the "Subprime Primer." It is satirical and uses salty language (you've been warned), but is about the best short explanation I have seen anywhere: http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1.

[frickaline]

18. didnt the fed inject the markets with liquidity today for a few of the more major lenders?

[WCGreen]

19. Yes but until those wothless debts are somehow taken off book,

there can really be no final solution.

[PerfectSage]

7. Just another downleg in a bear market that started in January.

The credit markets are seized up. Every bank is hoarding cash and afraid to lend, because one bankruptcy triggers another and/or pushs others closer to bankruptcy. etc etc.
ie a bankruptcy chainreaction.

The long term ramifications are that a credit bubble bigger than 29 is popping. A lot bad debts will never be collected.

[BuyingThyme]

8. Yes, I can tell you with absolute precision.

Uncertainty.

[WeDidIt]

9. We're on teh brink of a Depression

That's what's happening.

[WeDidIt]

10. We're on the brink of a Depression

That's what's happening.

[ContinentalOp]

13. I don't have a lot of economic knowledge...

but it seems clear to me that today's market crash is understandable, not as something that was predestined to happen but as Wall Street's reaction to the fact that they're not getting $700 billion of free money.

I mean seriously: you say "hey here's a plan to give Wall Street $700 Billion no strings attached. we need to vote on it by Monday." Let the bankers pop champagne corks and get giddy with anticipation, then you expect the market NOT to crash on Monday when the bill doesn't pass?

[geek tragedy]

17. The sky just fell. n/t

[Doityourself]

20. We are fucked! All of us! n/t