I Don't Know If You Know This, But This Economic Crisis Is Kind of a Big Deal

I know how this works. Most college students will say the economy is the number one issue for this election because caring about the economy sounds good.

But chances are you have zero clue what's wrong with the economy.

That's okay. This is so complicated that an Ohio University professor who consults Congress on economic issues said he doesn't think either presidential candidate understands the crisis and that there are "smart people in Washington who don't know what to do," today at a discussion with students.

I like a challenge, so I am going to try and explain things for you with a simple analogy. I have gotten my information by extensively reading a variety of newspapers and Web sites for the past month (this one's one of my favorites, though the least informative), talking to my dad who is one of the most informed persons I know and my attendance at a lecture today with Dr. Richard Vedder, who is testifying before Congress next week on economic issues, and Mark Tatge.

Essentially, the shit hit the fan. That's right, greedy financial institutions grew more and more constipated and let out a gargantuan dookie. Think about that for a second. What happens when a piece of shit hits a ceiling fan?

That's right, it shoots out and makes a big, smelly mess that scares everyone out of the room.

Banks and lending companies got rich making risky loans. The government backed off and let the financial institutions loan out money like it was going out of style. The banks would just buy insurance or securities on these loans, covering their backs.

So if you can limit your risk for giving a loan because you have purchased insurance, then it's like eating P.F. Changs without consequence.

People got mortgages that exceeded the value of their homes. A mortgage is a loan that is placed against your house, so if a house is worth less than the amount loaned, the loaner will get screwed if the loan recipient cannot make the loan payments.

Housing prices were booming because getting these loans was so easy. People who could not afford houses were buying houses. When people want something (aka demand) price will increase. These companies giving mortgages were going by the market value. If a lot of people want to buy houses and can buy houses, then a house is worth a lot of money because there is a high demand.

This all lead to a giant housing inflation gas bubble.

So people could get be lent more money to purchase houses because the demand inflated value. This caused some people to engage in house flipping.

Because eventually these huge mortgages and subsequent mortgage payments caught up to people, the banks had to go to the insurance companies to make up for the defaulted loans and the insurance companies could not pay off all the securities.

We're talking about the biggest corporations in the country, Tatge said today. One institution made equal to 1/13 of the U.S. Gross Domestic Product (the country's total profit). Take into account how there were multiple giant financial institutes on the verge of or in bankruptcy and you get the makings of a global crisis.

That's the shit hitting the fan. What comes next? Everyone tries to get out of the room, which was starting to happen in the last few weeks when the market dropped like fecal matter hitting the porcelean pond.

Fear drives the market more than anything. That's what started the Great Depression, everyone got scared about their investments and savings they all went to remove it at the same time, leaving banks unable to give everyone their money. Vedder said this past three weeks was the closest we have been to that level of panic, which is why you hear or read comparisons to the Depression and today even though the national unemployment rate is 20 percent less today.

Links for Further Reader/Listening
So my poop analogy did not do it for you? Well, you can make that argument, but you cannot argue that poop isn't funny. Anyways, here are some links to some news packages, stories and blogs that may explain things better:

My friend and co-worker Alex Hazlett wrote this breakdown of the crisis in the Athens News. She recommends listening to this NPR cast

I thought this Harvard professor's blog would be boring in explaining the economic crisis, but it actually is entertaining. I recommend giving this video a peak.

Everything else seems to be pretty similar, but if you're still having trouble, try the NYTimes.com for updated news. If you want to learn as much information as possible, try this Wall Street Journal blog.

What can the presidential candidates do?
Neither candidate really understands the crisis, Vedder and Tatge both said. Vedder said he has been on phone conferences with the White House and he got a sense of complete panic.

What it's going to come down to is who each candidate has advising them on the economy now, who more than likely will be advising them if they are elected. This USA Today article breaks down who the people are, or you can save yourself some time and take Vedder's recommendation. He said both candidates have smart people backing them.

But I said earlier in this post, Vedder also said smart people do not know what to do, which leaves me to this conclusion.

Fixing the economy is going to be left in fate's hands. If you agree with myself and Vedder, you do not think an economic stimulus package, such as the one Congress's Democrats are trying to pass now, will be ineffective and costly.

Other than that, we just have to try and understand as much as possible. We need to act as watch dogs on this $700 billion bailout and hold the government responsible if they lead us to depression.