There are so many things going on in the world of finance right now. I know that you are hearing about things like:
- Mark to Market
- Credit Market Freeze
- Derivatives
- Sub-Prime Mortgage Meltdown
- Mortgage Backed Securities (MBS)
And there are a hundred more... 
I can't explain each of these in depth, but they are some of the things that NEED to be understood in order to know how we got to this point where the banks aren't willing to loan money to each other even overnight.
The path that we took to get here, in part, goes back to an item called the Community Reinvestment Act. Groups used it to force banks to make loans that were VERY shaky. It has its beginings in the Carter Administration. It really built steam in the Clinton years. It kind of faded into the background in the early years of Bush... but the market was flush, so the problem was just a festering wound over unbroken skin until home values started to get challenged.
I have written a lot on my other blog about how the CRA and groups like ACORN played a large part in the financial problems we are currently facing... but I'm trying to not be political here (yes, I AM opinionated).
This is the part that you need to know. This has been a long time coming. And now, because there are so many bad loans, and banks don't know which other banks might have junk on their books, they don't trust each other.
What needs to happen in order to move forward is that trust in the financial system needs to be restored. That is the goal of the bailout.
from LaneBailey.com
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I'd love to hear from you...
Trust is the back bone of our economy and right now buyers don't trust the housing market is in good shape so they are delaying the decision to buy. We need confidence and trust to get us going again.
Oh the grief I get when I say things like this. There is lots of blame to go around but I agree - the CRA was a HUGE part of the problem!
This morning I read an economist's 3 page article that tied the mess to the way lenders are compensated. He thinks that if they were compensated like stock brokers, in which performance equalled better pay, we would not have gotten into this mess. An interesting angle .
And as we know, trust is not gained overnight. Good post Lane.
Terry - We do... and I don't know that the government is the instrument of trust.
Susan - There is NO question that the CRA was the match that lit the fuse.
Mary - I don't know how that could work. But the bigger point is that most stock brokers are paid for transactions, not performance. The Hedge Fund Managers were paid for the performance of the fund... and that isn't working out so well for us right now. But, back to the point, if a buyer craps out on a mortgage 7 years down the road, should the lender sue the broker?
Laura - But it sure can be squandered fast...