For those of you wondering what the hell happened to the economy, here's an easy to understand way to understand the financial crisis and the pre-cursor, sub-prime lending.
The age of Crappy Loans
- Banks made crappy loans to people to buy overpriced homes
- Insurers insured these crappy loans
- Banks repacked these crappy loans (since debts ARE ASSETS to a bank) and sold these as investment products
- Countries are now BUYING back these crappy loans to prevent the financial system from collapse
- In essense, we're buying crappy loans TWICE.
Crappy loans = Toxic Assets.
Problem is there's so many toxic assets AND insurance insuring these toxic assets that VALUE no longer exists.
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