Can someone explain to me in simple terms how the world banking system has got itself into such an awful mess?

If your not easily offended Google or search "The Subprime Primer".
It how our teacher thought it would somehow explain that mess!

It was not properly regulated. Now it will be so regulated that it can't function. Politicians are not competent people. Those involved with making money are greedy people. Nurses like to care for the sick. Artists like to create.

Greed.

It's that simple.

Way oversimplified: Borrowers stretched too thin, lenders too lenient and risks passed on to others when loans were turned into securities and sold with no recourse to the mortgage brokers. The Fed was too accomodating through FNMA and Freddy Mac. Complicated mortgage backed securities that few understood completely and finally panic over relatively few defaults led to an absence of a secondary market for the loans. Banks must carry the loans at market value and meet govt ratios. and the value went to almost zero as everyone panicked. Home prices fell, causing more defaults and a nervous Wall Street and you get a fiasco.

Greedy twa*s in charge.

Greed poor judgement and weak regulation. This is the downside of the "Global Economy" if one country's economy gets in trouble they all go. :

Well, you see here. We are in the Iraq War, yes? Well, instead of bombing more significant buildings, the Taliban decided to go to more subtle and more strategic, thought-out, warfare. Guerrilla, you ask? No. In fact, they decided to poison our economy. In fact, they disguised themselves as bank employees and fucked over our citizens by giving them low, adjustable, yet "affordable" mortgage rates. This caused all kinds of havoc. The banks, and stock market later suffered when all these people couldn't pay back the loans. The terrorists then went back in time to ensure that Bush won the election so there was no way we could possibly prevent this catastrophe with such an incompetent president.

And that, my friend, is why our economy is in the shitter.

Ben hit the nail on the head!

Here it is in my eyes.... The banks have always lent to each other.

Then the bankers' got really greedy borrowing money, and at the end of the year when they saw their big bank balance they got more greedy and gave themselves big bonuses at the end of the year, when they thought they can pay each other back.

NOW THEY CAN'T...

So now they can't because all the savings they had built up went on FAT end of year pay cheque's and thousand pound party's too see the good financial year out.

And now here we are (you and me),they aint got a penny spare and know that they wont go under because the government will sort it.

Do they care if they go under... I think not..... they had their fat cheque's years ago..... no credit crunch for them, they secured their mortgage along time ago.

So here we are, footing the bill ( taxpayers only..... benifit grabbers do not apply)

So when my home goes down the swanny and the life me and my hubby have worked so, so, so hard for (40 hrs week each + 2 kids to look after) the last 9 years is reposessed by the bankers and labour party government, please remember this.

YOU GET OFF YOUR BACKSIDE AND WORK FOR A LIVING, THIS COUNTRY IS NOT SUPPOSED TO WORK FOR YOU...!

LABOUR PARTY, GET OFF YOUR BACKSIDES AND WORK FOR THE WORKERS.

VOTE CONSERVATIVE PARTY IF YOU AGREE, IT WILL ONLY GET WORSE UNDER LABOUR AND JORDAN CLOWN'S GOVERNMENT

The following is a condensation of a series from the Investor's Business Daily explaining "What Caused the Loan Crisis":

1977: Pres. Jimmy Carter signs the Community Reinvestment Act into Law. The law pressured financial institutions to extend home loans to those who would otherwise not qualify. The Premise: Home ownership would improve poor and crime-ridden communities and neighborhoods in terms of crime, investment, jobs, etc.
Results: Statistics bear out that it did not help.

How did the government get so deeply involved in the housing market? Answer: Bill Clinton wanted it that way.

1992: Republican representative Jim Leach (IO) warned of the danger that Fannie and Freddie were changing from being agencies of the public at large to money machines for the principals and the stockholding few.

1993: Clinton extensively rewrote Fannie Mae and Freddie Mac's rules turning the quasi-private mortgage-funding firms into semi-nationalized monopoies dispensing cash and loans to large Democratic voting blocks and handing favors, jobs and contributions to political allies. This potent mix led inevitably to corruption and now the collapse of Freddie and Fannie.

1994: Despite warnings, Clinton unveiled his National Home-Ownership Strategy which broadened the CRA in ways congress never intended.

1995: Congress, about to change from a Democrat majority to Republican, Clinton orders Robert Rubin's Treasury Dept to rewrite the rules. Robt. Rubin's Treasury reworked rules, forcing banks to satisfy quotas for sub-prime and minority loans to get a satisfactory CRA rating. The rating was key to expansion or mergers for banks. Loans began to be made on the basis of race and little else.

1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo, then Secretary of Housing and Urban Developement, allowing Freddie and Fannie to get into the sub-prime market in a BIG way. Led by Rep. Barney Frank and Sen. Chris Dodd, congress doubled down on the risk by easing capital limits and allowing them to hold just 2.5% of capital to back their investments vs. 10% for banks. Since they could borrow at lower rates than banks their enterprises boomed.

With incentives in place, banks poured billions in loans into poor communities, often "no doc", "no income", requiring no money down and no verification of income. Worse still was the cronyism: Fannie and Freddie became home to out-of work-politicians, mostly Clinton Democrats. 384 politicians got big campaign donations from Fannie and Freddie. Over $200 million had been spent on lobbying and political activities. During the 1990's Fannie and Freddie enjoyed a subsidy of as musch as $182 Billion, most of it going to principals and shareholders, not poor borrowers as claimed.

Did it work? Minorities made up 49% of the 12.5 million new homeowners but many of those loans have gone bad and the minority homeownership rates are shrinking fast.

1999: New Treasury Secretary, Lawrence Summers, became alarmed at Fannie and Freddie's excesses. Congress held hearings the ensuing year but nothing was done because Fannie and Freddie had donated millions to key congressmen and radical groups, ensuring no meaningful changes would take place. "We manage our political risk with the same intensity that we manage our credit and interest rate risks," Fannie CEO Franklin Raines, a former Clinton official and current Barack Obama advisor, bragged to investors in 1999.

2000: Secretary Summers sent Undersecretary Gary Gensler to Congress seeking an end to the "special status". Democrats raised a ruckus as did Fannie and Freddie, headed by politically connected CEO's who knew how to reward and punish. "We think that the statements evidence a contempt for the nation's housing and mortgage markets" Freddie spokesperson Sharon McHale said. It was the last chance during the Clinton era for reform.

2001: Republicans try repeatedly to bring fiscal sanity to Fannie and Freddie but Democrats blocked any attempt at reform; especially Rep. Barney Frank and Sen.Chris Dodd who now run key banking committees and were huge beneficiaries of campaign contributions from the mortgage giants.

2003: Bush proposes what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago". Even after discovering a scheme by Fannie and Freddie to overstate earnings by $10.6 billion to boost their bonuses, the Democrats killed reform.

2005: Then Fed chairman Alan Greenspan warns Congress: "We are placing the total financial system at substantial risk". Sen. McCain, with two others, sponsored a Fannie/Freddie reform bill and said, "If congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole". Sen. Harry Reid accused

The banks created an elaborate scheme in which they created insurance polices that were "swapped" in place of investing in the respective company. They never expected anybody to come back and want their money. The Tuesday edition of The News Hour on PBS had a story on this that you can see here: http://www.pbs.org/newshour/bb/business/july-dec08/solmancredit_09-23.html

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