Quote:
Originally Posted by RIROCKHOUND
Thats my biggest issue; I see the need to fix this situation...
I'm a financial moron, and want to hear the what, when, why and how much of impacts to average person, instead of talking above and fear mongering....
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Here is what you need to know:
daily, billions of $ moves between companies to fund capital investments, and invest short term cash. For example, on a small scale, Stop and Shop receives a delivery of $25,000 in milk. The owner of the store doesnt cut a check, its paid at a later date. Everythng is done on credit. Money moves constantly from bank to bank to fund major companies, just like we go to the ATM.
Well, all these banks and other major investment comanies have invested heanily in these garbage mortgage backed securities. on paper, they seem a pretty risk free return, In reality they are made up of really bad loans to people who are defaulting. So rather than get a return on their investment, they are not getting cash flow due to the defaults. So, there is a lack of $ to fuel the daily cash flow between businesses.
The "disaster" that people are concerned about might be - gas, food, domestic good delvieries might stop, if no one believes the bank will be able to value a check for deliveries, companies may stop shipping. There is no confidence they will get paid. Major corporations will not be able to get $ to fund their daily outflows - building new facotries, major system upgrades, and most importantly payrolls. Since our entire system is fueled by cash flow and the instituions that provide this cash flow have their $ tied up in bad investments, there may be no cash to move.