Now I don’t know much about the recession but I’m just very curious as to this: When the recession hit the U.S. how does it take away money from Wall Street and then it takes away money from the people. Please explain on how this process goes. Thanks!!
How does it take away money from Wall Street.
Banks loaned out money for mortgages. These mortgages were bundled together by the thousands and sold for investments. They were seen as better investments because they were rated high and the return (interest rate) was higher than traditional savings. It was thought to be the best of both worlds.. safe investment, high return.
The demand for such investments go so high that banks began to offer riskier loans called NINA loans. You didn’t have to prove your income or assets.. merely state them. The reason they did this is because they knew they would be able to repackage the loan and sell it off down the line.
When these NINA loans began to fail, investors lost money. The way these things were sold off, it was almost like a domino effect. Investment banks that had lots of these in there portfolio had lost money see?
The way it takes money from people
Since this happened, banks have tightened up lending standards so they could stay afloat financially. They don’t want to lend out their money…. instead they would rather keep a hold of it to see where things are going. This could spread into consumer debt as well and there is uncertainty in the air.
What results is people and businesses not being able to get loans to get cars or machines or houses or school loans.. all sorts of things
if we leaned toward a capitalist and laissez faire economy then the US would’ve died 79 years ago back at the beginning of the Great Depression (and we almost did, because President Hoover was a free market politician. But then we got Roosevelt and the world was saved) And the issue isn’t really about corporate profits, it’s simply because the banks have so little capital left after they lost money through stocks in certain companies, that they can’t give out loans and such, which people usually use to start businesses, buy homes, etc. This would lead to a decrease in the increase in GDP of the United States, which would indeed be a recession, or even depression. And it’s not like problems like these happen every day – the last recession that happened in the 1990’s lasted for one month and did almost nothing. So, if we do put in the bailout, the money will go to banks that will loan them out to average people who will use it to start businesses, get homes, etc. -even college loans apply. And in any case government regulation isn’t necessarily a bad thing, as if you understand political theory, democratic socialism, or a welfare state, is actually a good thing. For example, Denmark has one of the highest tax rates in the world, but their citizens are statistically more satisfied and happy than any other nation, because the government pays for almost everything (healthcare, etc.) This principle can also be applied to economics
Wall street is a reflection of the stock market. Companies exists because the stock market provides their money for day to day operations(generally). If people stop trading/selling/buying stocks and companies don’t produce dividends to pay stock holders or cause the stocks to be worth more than what they were purchased for(intent of reselling to make a profit). That causes companies to incur losses. When companies incur losses employees jobs get cut, and benefits are taken away from employees. A recession is part of the economic cycle in many industries. You cant have a million retail companies and expect all them to last forever, the strong(financially) will survive the weak will perish. A lot of factors have been negated in this explanation for simplicity but the stock market is quite important. But remember if wealthy people don’t invest the value of the dollar declines and all the money they have becomes worth less and less and less and a point theoretically to which money can become worthless…then we would use a barter system of trade. 🙂
Wall Street is the economy.
Millions of people invest their money into retire funds which are directly tired to the stock market. Millions more invest on a day-to-day basis and can lose their money that way.
Now, if you don’t do either you can still be effected because everything is connected by an invisible web. With a recession, there is less demand for products (let’s say cars). Less demand = not as many being sold = dealerships not earning money = sales reps getting fired to prevent the dealership from losing money that year = car manufacturers not making as many cars since the dealerships can’t sell them = shop guys getting fired because manufacturer doesn’t want to lose money for paying 100 people to do 10 people’s worth of work.
Now all these laid off people have no money to buy cars. IT’S A VICIOUS CYCLE!
when people started having to buy expensive gas they quit spending money on ":extas": &: companies who sold those ":extras": had poor sales which made the value of the companies and their stock go down. Companies then began laying off workers causing even less money to circulate. Also to stimulate the economy the govt dropped interest rates and banks began making risky mortgages that drove construction and housing prices up. When these mortgages went into default housing prices hit bottom and many people are in homes that they owe more on than they could sell them for. Many of these people decided to abandon the overpriced home and leave the bank stuck with it.
The tax money went for the bail out plan. The ceo’s spent it on things they didn’t need instead of helping their own companies. The ceo’s bought million dollar offices and trips to hawaii with our tax dollars. This goes with what carls said.
It was Wall Street that was hit first then it caused the recession.
It hurts the taxpayers because we have to pay to bail out the stupid millionaire CEO’s who continue to get million dollar bonuses.
Tax money us tax payers pay is used to bail out corporations. These corporations stock plumits when people feel that they are going under. Then it slowly rebuilds itself, not always, but sometimes this happens.
basically people stop believing in the worth of stock, so if people dont believe in it how can it be worth anything.
you can’t handle the truth!
(i had to haha)
Anyways I really don’t know I’ma
learn it during Economic class.