The International Monetary Fund said this week that losses from the global credit crunch could end up totalling a trillion dollars. But where does that money go? How on earth do you lose a trillion dollars? It’s not like just dropping your wallet on the bus? When one person loses surely another person gains?
I’m Jon by the way, one of the editors of the BBC’s World Today programme here at the World Service. This Saturday at 0500 GMT, live from Bush House in London, we’ll be trying to get to the bottom of just where all this money is going. Maybe it never really existed in the first place? Any answers?
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Maybe it never really existed… Like Enron-esque accounting? But spread more widely across the world financial market?
Or inflated housing prices, then prices fell, people defaulted, and the banks are left with deflated assets whos value was significantly diminished due to market conditions?
Im sure there are plenty of factors here.
Brett ~ Richmond, Va.
Wanted WHYS listener who is also a Sherlock Holmes type, to solve global economy case. Many suspects, hardly any evidence but guarenteed to be a complicated investigation….
to know where it has gone you need first to know fiat money is created by us using our signature on a document [any document that has a threat or a pro,mise to pay [be it a parking ticket, a mortgage document or a court order]
when we sign anything related to debt , or payment it becomes a promise to pay ,these iou’s become bundled as securities and are traded [for periods depending on the time they fall due]
when we default they lose monetary value [no ‘real’ money was lost only the chance to recover the debt[the real ‘lender’ got their ‘money] back when they onsold your loan agreement as a regestered security
even the selling agent got his commision ,[it wasnt real [only was ‘certified’ real ,thus bought by mugs who trust banks and bond bundelers and ratings agencies
[who self regulated us into fiat currency by promise of a future value being recoverable ,
now the value of that able to be recovered at ”maturity’ simply has been reassesed at a more realistic value [based on what they intime hope to recover [by their ‘educated ””GUESSS’]
Billion here, a Billion there….pretty son your talking about some real money.
Ask this administration and the N.W.O. to check their pockets for spare change.
Smoke and mirrors- you have to recall this was a scam participated by all the major institutions.
I am with you, Brett. Maybe it didn’t really exist. It is pretty safe to say it didn’t exist.
The financial market can operate on nonexistent assets until people start cashing in. When that happens, the guys at the bottom lose because the real money has disappeared before they understand what is happening. The little person always pays for the lifestyles of the rich.
It is time for an authority to examine the financial markets, which are all based on fluff. Many of the well known economic advisers do not even know what is happening at the top.
But you won’t have to take my word for it. š Sooner or later it will all collapse. It was ever thus.
As Brett mentioned, its actually not that hard… Speculation. You buy a bushel of grain expecting it to go up, and instead it goes down and you’ve got to sell it at a loss. Stocks, property, commodities… when they are all inflated over there real value, and they drop to that real value or lower, money is “lost”.
Losing my like that is what happens when you loan money to people who shouldn’t be getting loans, and making the false assumption that real estate values cannot drop. Real estate values are based upon irrationality. Think of where I live in washington, DC. A 1 BR condo can easily cost you $450,000. I wouldn’t pay that much for a 5 BR house. Are these condos made out of Gold? No, it’s just silly people who want to live in some trendy place, spending money they don’t have.
Kind of like buying google stock? What rational basis there for google stock to be worth over $500 and not $5? What does google even do to make money? Advertisements??
I do not claim a great understanding of modern financial markets etc. We used to have something called security. The British Government sold it’s gold so what we use for security now I do no know?
As many of you have said much of the world markets have been grossly overpriced, with no security to fall back on. I feel The UK economy is like a hollow log waiting to implode. Houses especially have been overpriced for years. Sadly it is alway the “ordinary” person who suffers while. The Northern Rock boss got Ā£750,000 for letting the company effectively go under!
I do like a good conspiracy theory George…or maybe everyone just got greedy, spending money by borrowing against the value of their homes (admittedly they were encouraged to do so)….money that they never actually had. What I want to know is whether anyone is getting rich on the back of other people’s misfortune/naivety/stupidity?
@Jon, the only people that benefit from this are the people who get to buy foreclosed homes which are now at realistic prices based somewhat upon reason.
unfortunately, the loss is real and absorbed by many millions of people. it started with the original buyer. they bought a property, which was overvalued. the mortgage broker sold them a variable rate mortgage with a low payment that would increase over time. the mortgages were sold to banks. when the mortgage rate changed, the property owner could not longer afford the payment. the banks had already paid the mortgage brokers for the title, but the property owner could not pay the bank. if the property owner does not pay, the bank forcloses on the property and takes it back from the person who originally bought the property. because so many properties were caught up in this cycle, there became over supply of available houses and the values depreciated. since the banks lost the money the stock shares of the banks went down in price. who lost money? the original property owner lost their down payment, if the property was forclosed, and the bank stock shareholder. who made money? the original property seller and the original mortgage broker. the bank shareholder will continue to absorb the loss over time because the banks own mortgages that are not worth nearly as much as they paid for them due to the drastic decline in value of the housing property market. supply and demand: when oversupply outstrips demand the values go down.
Brett and selena-
Yes money can be created out of thin air by the FED printing it.
But it does not disappear into thin air.
Between the two it exists in transactions and accounting, transfers and sales.
Creative accounting of Enron fabricated profits, but the actual transactions were transactions with a paper trail and final destination.
Jon-
What I want to know is whether anyone is getting rich on the back of other peopleās misfortune/naivety/stupidity?
………………
The participation of banks knowing this was a scam is exactly like Enron, so in that sense it is the very definition of a conspiracy. But you rightly say this was greed run wild.
Today one of the ways profit is being made by other’s misfortune here in the Atlanta area are signs everywhere
offering rent to own, for people who have just lost their houses by foreclosure.
If you calculate the interest and cost of these offerings of “rent to own” you find people are being taken to the cleaners.
But a family that is on the street, nowhere to go, no options, being ripped off yet again with the rent to own racket gets a roof over their head, temporarily anyway.
I’m no financial whiz, but I’m willing to bet (cash if I had it that readily available, I would!) that there are only so many $1,000 hammers and staplers our governments can buy; only so many studies on the sound grass makes when it grows; only so many highways, ports, public hospitals and schools that are invisible to the naked eye, or dams built on porous rock! Let’s not forget wars that only make sense (and profits) for those who start them! The election campaign funding to make sure the ‘right’ person wins at all costs! The bloated Government Cabinets with ‘all the fixings’? Jobs for the boys to say ‘thanks for the parliamentary votes’!
Come on, people! That money’s coming from somewhere!
Savane
Nairobi Kenya
GET REAL! It DIDN’T just disappear.
SOMEBODY TOOK IT.
Like the rest of you, I too profess no knowledge – great or otherwise, about economic theory and financial managegment. However, it would seem to me that there are reasons to be suspicious when you start getting the option to own things you could not and will not be able to own in a realistic period. The edge funds and mortgage recycling ploys in this instance should, reasonably, have sounded off alarm bells from the beginning.
However, desperation is almost always a useful motivating factor, especially in the cases of those who needed shelter for their families ASAP! With urgent demands like those yapping at your heels commonsense sometimes is usually the first to go out the door…oh, right, you never had one to begin with?! Hence, the problem!
“Billion here billion there….” I agree but in all fairness this is a quote that really should really be attributed to the man responsible for it. Senator Everett Dirksen I believe started this with his “million here million there….” He was a champion against all things wasteful.
Think of it as a transfer of wealth,
from millions of average people
to a few of the largest players
in Wall Street.
An investment bank is just a huge investor
who gets money at favorable interest in
quantities so enormous only a physicist
can envision the numbers, plays it on
the inside, and makes his megabucks
because of who he knows.
Greg-
Senator Everett Dirksen was one of my all time favorite people of all time.
Good man, and he had an extraordinary voice.
You are exactly correct: I drew directly from Dirksen.
Thank you for pointing it out.
Where did one trillion dollars go? It went to mostly to homebuilders, realtors, sellers of existing homes, and mortgage originators who sold those mortgages to others too lazy to do their due dilligence and find out they would never be paid back for the loans they were assuming. This proves that bankers are far stupider, lazier, and more careless than their high salaries and the platitudes they spout would lead you to believe. Who will pay? Some bank shareholders, some bank employees, and the public at large now that there is so little credit available. The future will be decided by the US Treasury now that the Federal Reserve has shot its gun and the bullet has had little impact. This was not a surprise since it always happens that way. Japan has been in recession for 20 years since something similar happened there. So what will the Treasury do? If it does nothing there will be a recession in the United States which will ripple around the world. If it prints money like crazy, there will be a round of inflation and further devaluation which will ripple around the world. Perhaps it will try to steer a middle course. Like it or not, the US economy is the engine which drives all the other economies. Taking it for granted that it will always run smoothly is a mistake non Americans make over and over again. Brace yourselves, we’re in for a rough ride no matter which way the Treasury turns at this fork in the road. I’ll bet if Clinton or Obama wins, we’re in for inflation, McCain and it will be recession.
I found the poster boy for the trillion-
John Paulson, 52
Hedge-fund manager
New York, N.Y.
Annual Income 3.5 BILLION (that is with a B- Billion)
He is on the cover of Sunday Parade magazine in the News Paper.
The title is: What do people earn, our annual report.
4/14/08
i would love to know how someone could
lose a trillion dollars!
Dennis~Madrid, United States of America