This is really great news.
The Stock market which hit its peak in October 07, then fell by 55% to its low in March of 09, and now has rallied by over 30% ,is back.
The recovery is under way.
The worst is behind us.
We have survived “the worst economic recession of the last 80 years”, and now confidence is returning to the market place.
What a relief.
Back to normal.
It only took us 17 or 18 months to go to the gates of hell, and now we come back reborn.
It must be a miracle!
A fiscal program of obscene deficit spending, social engineering, and socioeconomic bludgeoning must be the nectar of the gods of economics.
Get out the credit cards, and lets start keeping up with the Jonses once again.
Or NOT!!!
The ” perfect storm” series of events,which have attacked the foundations of our economy, have created a serious void, necessitating dramatic long term actions as part of the healing process.
Sadly we haven’t even begun the first small step towards a recovery.
How did this happen?
The market high point in October 07, was fueled by the real estate bubble and low interest rates, pegged at 1% by the Fed, in an attempt to keep the bubble inflated.
The mortgage industry found itself in a situation, where the average home was more expensive than the average person could afford.
To keep the ponzi scheme going, the bankers had to utilize an alternate method of making a mortgage affordable, even when it was more than a buyer could afford.
In order to comply with government dictates, the mortgage lenders began offering sub prime borrowers, the Adjustable Rate Mortgage ( Sub-prime ARM) as an option.
The ARM offered the purchaser a low introductory rate for the first 5 or 6 years of the mortgage. Usually based upon interest only, it offered the buyer an opportunity to purchase a home that was more that he could afford, with the expectation that when the rate adjusted upwards after the 5 year introductory period, the home owner could sell the home at a large profit, or refinance at a new lower rate.
These sub prime ARM’s are what have been defaulting since 07, dragging down the banking system. Home prices began to stop going up, and instead of selling at a profit, many home owners found themselves “under water”, and chose to default.
Fanny & Freddie had been “encouraged” to make these sub prime loans in the late 90’s, and many people rode the new wealth and pride of home ownership up and then crashed as home prices reached a peak and stalled.
The bankers who made these sub prime, loans began to worry about the exposure if the loans defaulted, so they packaged their sub prime loans and took out mortgage insurance called Credit Default Swaps( CDS)
These mortgages were sold and resold with ever increasing leverage, based upon the steady increasing prices of homes during the early and middle 2000’s. These highly leveraged CDS’s became more and more shaky.
More Later
I don’t want to overload your attention span.
[...] Read more here: The Economic Stimulus is turning the Economy into a Swamp. Add more water and you just get swamped. [...]
Thanks for the useful info. It’s so interesting
Thank you
I try to make a complicated subject understandable