On 10/12/2012 11:43 AM, Stephen Russell wrote:
On Fri, Oct 12, 2012 at 10:44 AM, lelandj <[email protected]> wrote:
When people started defaulting of
sub-prime real estate loans
Just read that sentence and realize it was inevitable. You now are
packaging up real estate and the owners you have grouped as sub-prime.
Unfortunately the rest of Western Europe saw the income and forgot
about the risk.
I should have said: "When people started defaulting _on_ sub-prime real
estate loans".
Anyway high yield investments wrapped around real estate, like mortgage
backed security, and collateralize debt, were very popular around the
world, not only in Western Europe. For example, China was heavily
invested here.
As an aside, the cause of the depression of the 1930s was a lot like the
cause of the Great Recession of 2007. During the roaring 1920s, the
value of the stock market quadrupled creating a stock market bubble,
which ended, Black Tuesday, October 29, 1929. Over the next number of
years, the value of the stock market fell 80% by around 1933. In the
great recession of 2007, the bubble was in real estate, which infected
the stock market.
After the stock market crash in 1929, there were runs on the banks, over
many years, that put over 9,000 banks out of business. At that time
there was no federally insured bank accounts. Banker were reluctant to
loans to anyone wanting to start a business.
Also, after the crash, it was difficult for investors to raise capital
with IPOs; because, everyone was leery of the stock market. Consumers
cut purchases to practically nothing causing suppliers to pare back
their businesses.
Also, the weather played a role.
#-------------------------------
Excerpt:
While not a direct cause of the Great Depression, the drought that
occurred in the Mississippi Valley in 1930 was of such proportions that
many could not even pay their taxes or other debts and had to sell their
farms for no profit to themselves. The area was nicknamed "The Dust
Bowl." This was the topic of John Steinbeck's The Grapes of Wrath.
https://www.google.com/search?q=cause+of+the+1930+depression&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:unofficial&client=firefox-a
or
http://tinyurl.com/8vgrg3g
#---------------------------------
Regards,
LelandJ
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