Toronto Mike

Boom Goes The Dynamite


I am not an economist.  I took economics in grade 11, but that was it.  I remember something about supply and demand... the rest is a little hazy.

I have been following the US government's $700 billion bank bailout plan, and I am aware the House of Representatives has voted it down.  According to preliminary tallies, the Dow Jones industrial average (INDU) lost 777.68 points, surpassing the 684.81 loss on Sept. 17, 2001 - the first trading day after the September 11 attacks. Before you jump out of that window, keep in mind the 7% decline does not rank among the top 10 percentage declines.

Watching 60 Minutes last night, the $700 billion bank bailout plan looked like a done deal.  Dubya and Federal Reserve Chairman Ben Bernanke praised the bill and urged Congress to pass it quickly. The House rejected the package 228-205.

If you're like me, and you've forgotten your grade 11 economics class, here's how the United States got in this mess.  It's all about housing.  Earlier this decade, it was much easier to get a mortgage. US home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble. Then, as good bubbles do, this bubble popped.  Boom goes the dynamite.

When that bubble burst, investment firms like Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG and Washington Mutual were left with staggering losses.  Risky borrowers scored mega mortgages, which is all fine and dandy when you can sell your house for more than you owe, but when the bubble burst, it was all loan defaults and foreclosures.

17.44% of visitors to this site are coming from the United States of America.  To those 17.44% I direct the following questions.  How is this current economic crisis affecting you personally?  How difficult is it to secure credit these days?  Is the worst behind you, or do you believe the worst is yet to come?

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