If you look past politics, while there are disagreements on how to fix the problem, there is pretty much a consensus on how it started: a large part of this is the piece about the subprime mortgage crisis, in which investors were paying for houses they couldn't afford and ended up defaulting, which decimated a lot of mortgage-based investments. But the bigger problem is the emergence of a popular investment called a credit default swap.
Basically, when a bank loans out complex debt to an investor, there is a high risk of default in which the borrower can't pay the bank back. Credit default swaps are basically a form of insurance to protect against that. The problem is, that lenders grossly underestimated the payouts from default which have been rising every year and the market has been unregulated. Think of it as insurance that was not regulated. And so, lenders need to pay out a lot more money than they are capable of paying. Hence, why AIG was bailed out--because the government knew that if AIG defaulted on their payments on these swaps, it would lead to a downward spiral of economic failures.
Another easier explanation for the down economy is that costs are rising, which are squeezing margins. When a small business has to pay outlandish fuel prices, that makes it harder for them to pay more money to invest in things like workers or machines (which take workers to produce).
These are pretty non-political explanations for the downfall of the economy, coming from a pretty moderate person. The solution to the problem is probably a mixture of both letting the market correct itself and taking some corrective action to fix the problem. You'll see a lot of politics in these matters, but I think you'll see a TON of politicians reaching across the aisle because they know that there's too much at stake to be jockeying for political position.
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Originally Posted by LiL stumppy
I'm not being a smart ass, just saying sorry for not clarifying what I meant.
We have been discussing this topic a lot and it amazes me how everyone has some way to fix the economy, not two people had the same idea. It was, new government, spend money, don't spend money. I never really followed politics or anything like that so I had no idea what was going on and didn't really believe this "recession" we were going through until the past few months where I have looked for a job and can absolutely not find one. Seems here a lot of people have different opinions as well on how to fix this problem. I am just curious, that's all.
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