In fact this will probably even apply to most of you.
Go up to a random person, and ask them in two minutes (or a paragraph or two) or less to explain what caused the financial crisis to the best of their abilities. Keep in mind the Financial Crisis is probably the single most important event to occur in our generation along with the collapse of the Soviet Union & 9/11.
The second test, which is even more depressing, is to ask someone exactly who the United States debt is (primarily) owed to and when will they have to pay it back. People literally believe the States owe money to China like your deadbeat gambling addicted father owes money to Tony Soprano.
Me and one of my buddies were asking random people this on Friday night at a bar and it was just pathetic. A simple question:
What caused the Financial Crisis?
"It was the War in Iraq. The fucking Americans should have never gone there"
"George W. Bush and Dick Cheney needed to steal money from people to fund the war"
"The investment banker took everyone's money and kept it for themselves instead of investing it like they said they were doing"
There needs to be a serious movement to increase the knowledge and teaching of economics in public schools. People are so fucking stupid. You'd laugh at someone who didn't know what gravity was, or couldn't find Africa on a map, or didn't know the Earth rotated around the Sun, or couldn't do basic multiplication or who fought in WWII on which side... but ask someone why the Central Bank sets an interest rate and you might as well be asking them explain why string theory operates in 11-dimensional space.
Ok I'll do #1 as short as I can. Keep in mind it's not like I expect anyone to provide this comprehensive of an answer, the point is to just at least get a general idea that the person knows what's going on. You don't have to know astrophysics to understand that the Earth rotates around the sun.
So what caused the Financial Crisis?
Low interest rates prompted investors (individuals, pension funds, government funds, etc) from around the world to seek new avenues in which to invest their money. This demand for new sources led to the creation of CDOs, collateralized debt obligations, which is a pool created by investment banks backed by various amounts of debt: a bunch of debt is collected, divided up into tiny slices and investors can buy one of these slices (say someone owes you $500 at 8% interest, well me and my friends will buy that debt & immediately pay you the equivalent of $500 @ 2%... you immediately make a profit, and we all have 6% growth assured for the length of the loan).
Mortgage based CDOs became very successful so demand was very high as low interest rates made investors desperate for returns. Pensions funds & the like pressed investment banks for more CDOs -> investment banks pressed banks for more mortgages -> banks pressed mortgage firms for more mortgages. Naturally this leads to a loosening of lending standards (sub-prime mortgages), because the person selling the mortgage doesn't have to worry about actually collecting the debt. However, all the risk models everyone had on mortgages was based on past data when lending standards were rigorous, which led to credit agencies underestimating the risk of default on the mortgages and hence underestimating the risk of investing in the CDO (the models also failed to account for a fall in real estate prices).
Long story short, one day the house of cards instantly fell apart. People started defaulting on their mortgages & real estate prices stopped rising. People owned more on their houses than it was worth & stopped paying. More people defaulted. The value of the CDOs tanked. Investors didn't want them anymore and now all these firms; investment firms, banks & mortgage firms were stuck with these mortgages they had only acquired because they were expecting to sell them into a CDO. So all at once, investors lost tons of money, and ibanks & banks defaulted because they were stuck with these toxic mortgages they could no longer sell to someone else.
( sometime in the future i will need this ) tag. tag tag tag
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