A lot of people have probably seen the stick figure version of the meltdown explanation.. Lots of vulgarities, but a good explanation in its’ own right… I finally found a clean version which I can share with you, my dear readers…
Paddy Hirsch from Public Radio’s “Market Place” explains the meltdown, or more specifically how the CDO’s(Collateralized Debt Obligations) caused a lot of this problem…
Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.
I found this other one from Paddy, and it is also a good primer for those not in the know… Interesting stuff!
The credit crisis as Antarctic expedition from Marketplace on Vimeo.
Here’s a solution for the subprime mess… have a government sponsored loan available for every homeowner up to $100,000. The loan would be available at 0% interest plus the rate of inflation. The catch is that the loan would be personally guaranteed and would survive foreclosure and bankruptcy. As part of this the lending institution would agree to write the loan down to the fair market value and reset the balance of the loan to the prime rate. This would cost approximately $1 trillion but it would inject that $1 trillion into the financial system thereby immediately increasing liquidity. Since the $1 trillion would be personally guaranteed there’s a 99% chance the money would be repaid so in the end the actual cost would be close to zero. Perhaps a better idea.
Banks were being too loose in their lending practices and people were having a hard time saying no to these huge equity loans and credit lines. Individuals with very poor credit were able to purchase these houses with 100% financing, which should have never happened. Now many people are stuck in houses owing more money than the house is worth. Short sales are the only way that an over leveraged homeowner can sell a house fast if needs be.