Okay, I tried to explain this to Samma tonight. She was very polite, but I don't think I was clear. Let me try again. I'm going to write this in parts because it actually makes me physically angry, and I can't write for long lest my brain explode.
1) Subprime lending.
You've heard about it, but what is it?
It's a situation where financial institutions in the US have been giving out loans/mortgages to people who don't have credit scores good enough to go through conventional loan packages. In otherwords, they are charged a higher interest rate because their credit is not very good.
What's the (obvious) fallout?
These people are getting loans at much higher rates, and in many cases it's for amounts that they cannot afford. These banks and financial institutions are signing off on these loans anyway because it makes their numbers look good.
These people are and have been unable to pay out their loans.
2) Investors Panicking
So these loans are bad. There are funds all over Wall Street that were investing in the companies that were giving out these loans because their numbers looked so good.
Most of these loans have gone bad now. Big fucking shock.
What has this meant?
Investment Banks, The 'Big 5' Canadian Banks, and the major US Banks have all lost money.
Securities and Investment companies have lost money.
Bear Sterns and Lehman, have both lost huge, and they were the two biggest players in the market.
Please, go onto
http://www.bloomberg.com and look up these two companies. Their names are plastered all over the site. See how well they've fared lately.
3) Why the fuck is Anup talking about this?
Bear Stearns went bankrupt, almost.
See, if they had gone bankrupt, they would have had to disclose the fact that they paid out BILLIONS of dollars to members of their Board. They don't want investors to see that, because they'll get mad, and rightfully so.
They were bought out at $2/share by JP Morgan (heard of them?). That's practically bankrupt, but not quite.
Do you know where the money to buy them out came from?
The US federal reserve.
In the amount of $200 Billion in treasury bonds.
That's essentially $200 Billion in cash being sent into the market with an already weak American dollar, and rumours that they are going to slash interest by another 100 basis points, bringing their prime lending rate to an astounding 2.25%. That's fucked.
They're hoping to spend themselves out of debt.
Or they're hoping to write off the dollar. This is devaluation like we've never seen since the 70's, and 1930's & 1940's Germany.
They are ARTIFICIALLY increasing the money supply.
4) Who the hell is the US Federal Reserve?
You know the Bank of Canada? They govern the monetary policy in Canada. They decide the lending rates, and the money supply (there's a correlation there, but you don't have to understand it to follow me). They are responsible to the Government of Canada. This makes sense, I'm sure. In theory, we, the people, control the government. The government, in turn, controls the money. We ultimately control the money.
This is not so in America.
In America, the printing of money is PRIVATE.
If you've seen the movie "Zeitgeist", you will know this. I'm not saying that this movie is necessarily coming true, but some of their predictions are eerie.
There are private interests devaluing the currency in America. This means that anyone holding American dollars (in savings accounts, GIC's, and funds) is fucked because of the resulting inflation that will occur.
5) What did the reserve do?
They bailed out a company that made stupid decisions and claimed it was for the people.
What the fuck does that mean?
Bear Sterns made a few stupid decisions. In the free market, they should pay for these decisions. If that means they go bankrupt, then so be it.
It seems that the government and people who cried so passionately for free-market capitalism are now asking the government to intervene.
It seems that if you're rich, white, and stupid, you get a different set of rules than everyone. (This doesn't apply to all white people, just the rich and stupid ones).
6) What does this mean for the economy?
I will tell you later.
I'm so mad.
So fucking mad.
If you have money in a savings account, I'd move it.
Buy gold. Buy coffee. Buy Sugar. Buy a fucking commodity.
And short these bastards in the futures market.
They're going to collapse. They should. They deserve it. They bet on the failure of North America, we should bet on theirs.
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