Analysis of America's Economy - Part 1 of 2; Sound or Sand? | PowerOptions Web Log
The world is now focused on the state of the American economy and more specifically, on Wall Street. America’s current crisis is the ultimate trickle down, economic theory. The housing meltdown created solvency issues, within the banking industry, when borrowers defaulted on mortgages. The construction industry continued to borrow to build more housing, leaving a glut in unsold properties and a further insolvency issue in the construction side. Many of these mortgages were underwritten by insurers who bet (and lost) that the mortgages would go to term and not enter bankruptcy proceedings. Wall Street firms bet on bundled packages of mortgages that were traded as if they were commodities, hoping for exorbitant profits on ARM (Adjustable Rate Mortgages) and Sub Prime Loans. Mutual funds bought into firms that touted profit margins that simply weren’t there or sometimes, allegedly, were fraudulently promoted. Investors, fearing the aforementioned insolvencies, withdrew millions from affected...
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