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Thursday, November 08, 2007

Subprime and More Economic Guessing

My economist friend and I agree to disagree on where this sub prime fiasco is going. Some of the effects that we are noticing right now are the bankruptcies of home loaning companies, hedge funds closing out bad deals, a weak dollar and major banks such as Washington Mutual and Citigroup reporting significant decreases in profit. And than there is Meryril Lynch who's CEO was fired just this past week. This industry is what we called financial orientated.

Many foreign investor bought US denomated assets and have discover that the assets they have bought our toxic sub-prime debt. The homeowner who borrowed the money is now defaulting on his loan which causes the bank to foreclose, which causes the hedge fund to close, which causes the investment company to report loses, which causes the country to go into a recession, which causes the dollar to collapse, which causes foreign investor to dump T-bills, which further causes the dollar to get weaker. And eventually, the US economy rebounds but domestic economies are no longer simple because there is no domestic economy just a global one.


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