Reasons for the economic crisis
This is a response to the post “ What is a crisis? This is ... ”, in which, in my opinion, the causes of the economic crisis are incorrectly described. In the comments on that post, I lost my temper and called it delirium. In order not to be an unfounded criticizing idiot, I wrote this post.
I also wrote this answer so that in the head of a person who has not figured out the current situation to the end, after reading the above-mentioned post, an incorrect explanation of the crisis does not pop up.
In general, there are professionals whose explanation of the situation can be read in specialized economic magazines or heard on the same radio Echo of Moscow. It is better to learn about the causes of the crisis from there, and not from the pages of Habr.
In the original post it was written that the Americans did not buy as much housing on credit as the developers built, so the banks did not get their profit.
In fact, the Americans, on the contrary, were very willing to buy real estate on credit. Banks relaxed and issued unsecured loans - that is, loans that obviously cannot be paid. Non-repayments are a normal situation, each bank lays a certain percentage of non-repayments on loans in its calculations. When the default is 2-3%, everything is fine - the bank makes its profit. But due to the fact that recently banks and credit organizations have begun not so strictly checking their customers, the percentage of defaults has increased dramatically - banks began to lose their profits.
How do banks make money? They take money from some people at one percent and give them to others at a higher one. It is beneficial for the bank to issue as many loans as possible.
Suppose a bank has $ 10 million. He gives ten clients $ 1 million each, and then sits and waits for this money for 20-30 years (mortgage loans have a very long maturity). Accordingly, the bank can only earn interest from these ten people, but it does not want to do that. What can he do? He can sell the debt of these people to investment banks or some other economic agents (for example, the Ministry of Finance of the Russian Federation). To "sell debt", the bank issues the so-called derivative mortgage-backed securities. These are not standard stocks or bonds, but securities, the percentage of which, relatively speaking, their holders receive from the population who took the loan.
The bank collects hundreds or thousands of loans at once and issues derivative securities under such a set of loans. These securities were considered very reliable (that is, the risk when investing in these mortgage securities was considered low), and very, very many investment banks bought them.
The bank that issued the loan resells the debt of its customers to other banks, receives money from them, which again can give out on credit ... and so on ad infinitum.
Back to the story of unsecured loans. At first, mortgage lending organizations such as Fannie Mae and Freddie Mac issued mortgages to people who would be able to repay them later. But such people are over - because of a thirst for profit, mortgage loans began to be issued to less reliable payers.
As a result, Fannie Mae and Freddie Mac, the two largest mortgage companies in America, went broke due to the fact that the percentage of loan defaults became too high. They went bankrupt, therefore, derivative mortgage-backed securities depreciated. And all investment banks invested in them. Fannie Mae and Freddie Mac pulled investment banks that ran out of money.
Investment banks go bankrupt due to the bankruptcy of mortgage companies. And since they invest in all other areas of the economy, money is not enough for everyone.
Hence the crisis.
In short: the cause of the crisis is that too many Americans have been unable to repay their mortgages.
Our banks often take money abroad. Foreign banks themselves do not have enough money now, so when worried depositors come to our banks, our banks cannot give money to them - they have nowhere to take it (remember that banks earn money on loans, that is, do not keep money with them).
Since everyone does not have enough money, money rises in price, that is, the lending rate rises. Business can not take loans for development, economic growth is slowing down. It’s bad for everyone.
I also wrote this answer so that in the head of a person who has not figured out the current situation to the end, after reading the above-mentioned post, an incorrect explanation of the crisis does not pop up.
In general, there are professionals whose explanation of the situation can be read in specialized economic magazines or heard on the same radio Echo of Moscow. It is better to learn about the causes of the crisis from there, and not from the pages of Habr.
In the original post it was written that the Americans did not buy as much housing on credit as the developers built, so the banks did not get their profit.
In fact, the Americans, on the contrary, were very willing to buy real estate on credit. Banks relaxed and issued unsecured loans - that is, loans that obviously cannot be paid. Non-repayments are a normal situation, each bank lays a certain percentage of non-repayments on loans in its calculations. When the default is 2-3%, everything is fine - the bank makes its profit. But due to the fact that recently banks and credit organizations have begun not so strictly checking their customers, the percentage of defaults has increased dramatically - banks began to lose their profits.
How do banks make money? They take money from some people at one percent and give them to others at a higher one. It is beneficial for the bank to issue as many loans as possible.
Suppose a bank has $ 10 million. He gives ten clients $ 1 million each, and then sits and waits for this money for 20-30 years (mortgage loans have a very long maturity). Accordingly, the bank can only earn interest from these ten people, but it does not want to do that. What can he do? He can sell the debt of these people to investment banks or some other economic agents (for example, the Ministry of Finance of the Russian Federation). To "sell debt", the bank issues the so-called derivative mortgage-backed securities. These are not standard stocks or bonds, but securities, the percentage of which, relatively speaking, their holders receive from the population who took the loan.
The bank collects hundreds or thousands of loans at once and issues derivative securities under such a set of loans. These securities were considered very reliable (that is, the risk when investing in these mortgage securities was considered low), and very, very many investment banks bought them.
The bank that issued the loan resells the debt of its customers to other banks, receives money from them, which again can give out on credit ... and so on ad infinitum.
Back to the story of unsecured loans. At first, mortgage lending organizations such as Fannie Mae and Freddie Mac issued mortgages to people who would be able to repay them later. But such people are over - because of a thirst for profit, mortgage loans began to be issued to less reliable payers.
As a result, Fannie Mae and Freddie Mac, the two largest mortgage companies in America, went broke due to the fact that the percentage of loan defaults became too high. They went bankrupt, therefore, derivative mortgage-backed securities depreciated. And all investment banks invested in them. Fannie Mae and Freddie Mac pulled investment banks that ran out of money.
Investment banks go bankrupt due to the bankruptcy of mortgage companies. And since they invest in all other areas of the economy, money is not enough for everyone.
Hence the crisis.
In short: the cause of the crisis is that too many Americans have been unable to repay their mortgages.
Our banks often take money abroad. Foreign banks themselves do not have enough money now, so when worried depositors come to our banks, our banks cannot give money to them - they have nowhere to take it (remember that banks earn money on loans, that is, do not keep money with them).
Since everyone does not have enough money, money rises in price, that is, the lending rate rises. Business can not take loans for development, economic growth is slowing down. It’s bad for everyone.