What is the economic crisis??

In the recent days, we are flooded with newspaper reports of economic crisis, the R-word (recession), credit crunch, jobloss and all the scary shit. All the orange papers are filled with the reports of gloom which we hardly understand but share the sentiments.

So, what is the eco-crisis all about?

Frankly speaking, the big companies are unable to sustain their business. If they are out of business we become jobless, we become jobless we dont spend, if we dont spend the goods are not sold and finally the company cant sell their product and then finally they shut down - A vicious cycle. Like a bicycle, as long as you keep on pedaling it will move the moment you stop your wight will drag the bicycle motion and will come to halt.


When did it all start?

Analyst say, the start of the crisis can be dates back to as early as July 2007 (src: wikipedia) when the house prices started falling. I t all started with the falling house price. In US, the people who intend to buy house generally take the mortgage route. The housing finance companies give loan and the house papers are kept as mortgage. When the loan is repaid the papers are returned. Now comes the interesting part: the loan interest started increasing so that people were unable to pay and they started defaulting. Once with high interest rate and the defaulting increased the demean for housing slumped. This led to reduction in the property prices, which further promted citizen to defualt - because the amount they were going to repay was far higher than the new house price. This was devastating. Led to further reduction in house prices. By this time Big housing companies like Freddie and Fannie has assumed huge mortgage papers whose value eroded sharply. They became bankrupt. Next in line was investment banks and the finally the retail banks. And the rest is history...