[Salika]

Originally Posted by mekrob

When the credit markets get squeezed (because of LOTS of bad loans on the books), then it's difficult if not impossible for businesses to get loans. Many businesses, if not most, absolutely rely on loans for new stock, payroll, etc. So if they can't get loans, they can't pay, or have a hard time paying, for new items, new equipment, for payroll, etc. This causes many to go out of business, leading to a depression.

600 points in the Dow is equivalent to about a trillion dollars. That means that yesterday, we lost another 800-900 billion USD.

And IbnM is right, this is far from being over. We'll likely see Dow 8000 before the New Year and we'll likely be below 7500 before Obama is in office. There's a good chance of being below 9000 by the end of the day.

That sounds so grim

[mekrob]

Originally Posted by Salika

That sounds so grim

A Greater Depression isn't exactly a fun affair.

[IbnMardhiyah]

Originally Posted by mekrob

When the credit markets get squeezed (because of LOTS of bad loans on the books), then it's difficult if not impossible for businesses to get loans. Many businesses, if not most, absolutely rely on loans for new stock, payroll, etc. So if they can't get loans, they can't pay, or have a hard time paying, for new items, new equipment, for payroll, etc. This causes many to go out of business, leading to a depression.

Ditto.

And such failures just cascade around the world. If because of the downturn, American industries arent buying raw materials at the volumes that they used to from foreign countries, such as China, then in those countries the economy starts to go down as well. Because of low demand for cheap goods, the manufacturing sectors of other countries start to slow down. Because of slower production, there is less demand for oil and other natural resources, and that in turn contributes heavily to falling oil prices.

Governments use the central banks around the world to try and resuscitate the global economy by lowering the federal lending rate, which in USA today has been cut to 1.5% in concert with like, eight or nine other central banks around the world. This is done in the hopes that banks will have more confidence to borrow from the central banks, and thus have more cash reserves available to lend to businesses and consumers, so that payrolls can be fulfilled, jobs created, which in turn creates more demand for products and services, and that in turn drives the manufacturing and retail sectors. This way, it takes a good two or three years for the economy to turn around.

It sounds simple but there are a lot of ticking time bombs, like Alt-A mortgages. These mortgages are made to borrowers that have better credit than subprime borrowers, but still below prime. These mortgages are about to reset to higher rates - and just like what happened with subprime borrowers - many of these borrowers will be unable to pay those higher rates, leading to defaults and foreclosures, and more banks and insurance companies will feel the pinch, yet again.

There are a lot of other reasons why this mess happened as well. De-regulation was one, and the credit rating agencies are another. They are at once both kingmakers and assassins, controlling who does business with you and who doesn't. They went along with AIG's credit swaps and gave them their blessing without examining the unstable layer underneath - the subprime market - and when AIG went down as a result, it brought a lot of other players down, including ones that had marginal, tangential, or even no connection to the banking & finance industries. And that messed up the economy.

Hardcore advocates of free-market capitalism will be unrepentant about this whole mess, simply retorting that this is how the market operates, in a cyclical fashion and that there will always be ups and downs. (Even though this crash could be bigger than the Great Depression)

But for many people [Muslims and non-Muslims] this mess makes you appreciate Islamic finance that much more because you realize the wisdom of spreading risk around equally instead of concentrating it on any one side of the multi-faceted equation. The mortgage industry was created to enslave people and at the same time to transfer the bulk of transactional risk away from the lender and onto the borrower.

M'sieur Sam, in the end what goes around ... comes around.

[IbnMardhiyah]

Originally Posted by mekrob

Just say Canadians are smarter than Americans. You know you want to. (And I wouldn't debate that hypothesis either) Intelligence has a strong influence on the quality of decision-making within a group or individual. Is it any wonder that, generally speaking, the smarter you are, the wealthier you are and the longer you stay wealthy?

World Economic Forum: "Canada has the safest banking system in the world."

I think last year we were tied with the Swiss or Australia I can't remember, but the WEF has changed their stance this year.

[IbnMardhiyah]

Originally Posted by mekrob

We'll likely see Dow 8000 before the New Year and we'll likely be below 7500 before Obama is in office. There's a good chance of being below 9000 by the end of the day.

It just sank below 8,600.

Dow falls through 9,000 and picks up speed - Stocks & economy - MSNBC.com

[Salika]

So what would be a good number for the DOW?

[Salika]

A Guide to the Economic Crisis for the Rest of Us - Associated Content

[mekrob]

Originally Posted by IbnMardhiyah

It just sank below 8,600.

Dow falls through 9,000 and picks up speed - Stocks & economy - MSNBC.com

Yeah, I saw that. It's getting really crazy. Several 500-point drops in two business weeks.

So what would be a good number for the DOW?

A good number? I'd say a healthy number, one based on real assets and not inflated value (due to a housing bubble) would probably be south of 7,000. Probably 5,000 (but what do I know). If we could stabilize there with a housing bottom, then we might start to see this thing turn around. But I think this will cause a very large distrust of Wall Street and banks on behalf of the American and world public which will last for decades, much like after the Great Depression.

But the good news is that this is a great time for Islamic banking to take the place of the dreadful interest-dependent banking system. I've spent a few years studying the messed-up market we have and there's probably more of an anti-Western banking industry sentiment among Libertarian non-Muslims than among Muslims. If Muslim banks can gain enough credibility to attract those non-Muslim investors, it might catch on with the general public. Then a more sane, organic economic can function which would avoid the boom-bust cycle of modern Western economics.

[IbnMardhiyah]

Originally Posted by mekrob

If Muslim banks can gain enough credibility to attract those non-Muslim investors, it might catch on with the general public. Then a more sane, organic economic can function which would avoid the boom-bust cycle of modern Western economics.

The Islamic Bank of Britain has been operating for a couple of years now, fairly steadily. The UK even re-wrote their national laws to allow Islamic banking. Based on their model, there is an Islamic bank that is being formed in Canada; currently its going through regulatory review and when it opens it'll have the first three branches in the Toronto area alone, with other branches in other major Canadian cities.

[Anderson]

Originally Posted by Salika

Ok I'm not gonna lie... I am a totally dummy when it comes to this whole economic crisis that's going on... why all of a sudden am I hearing terms like "the second great depression?" I knew the economy has been suffering (bad job market, dollar falling, etc) and I know that the DOW dropped 600 points last week (but frankly, I don't really know what that means practically speaking). But what's the "ooo, America as we know it is ending" talk? Can someone splain me? Thanks!

Basically this is not dissimilar to the Islamica 'rep crunch' , which occurred in the summer of 2007 immediately prior to the 'Crash'. Islamicans exchanged rep on the basis that it held some kind of value and the system worked based on that faith.

Several Islamican entities had grown huge accepting rep as a payment for posts and passed rep on to high risk 'sub prime' users or noobs. Once these sub prime users had accumulated a moderate amount of rep they began to recklessly spread the rep amongst each other leading to hyper-rep inflation and fall in the overall value of rep. As a result faith in this system was lost by casual users.

Many larger more established users found themselves holding a lot of 'bad rep' which held little material value and nobody wanted. In the difficult times that followed many were forced in to administration (Jamroll) whilst others were forced to merge (Jaysh + Jinnz). Some institutions catering exclusively to sub-prime markets went completely bust (brotherhood).

The IRI (Islamican rep index) fell to a very low standard and it is not uncommon to find many nobodies in the first page of the rep ranks.

So if you swap the word credit with the word rep you get an outline of how the current global credit crunch unfolded.

[sally]

Nice one Anderson Must spread rep



I've dropped every single economics class I've taken in my life due to sheer boredom but I love Google. It helps me become this cool wannabe self taught loser.

I advise people to just read everything out there and then some. If you're that interested in the whole ordeal then not only will you get multiple perspective but also learn the science of the economy and etc

Basically try to think about it in terms of the natural order of things. Everything that goes up, population figures, XYZ production must come down in order to maintain a state of equilibrium.

It's kinda like the global warming debate nowadays (part of Earths cyclical nature or man-made?) except most people believe that man has a lot to do with inducing it earlier than natural, or blah blah (there are various sub reasonings out there etc)

Except with this economic crisis we know that man has pretty much self induced it due to his choices. Had people not made poor choices, there would still be shakiness in need of being endured in order to progress through the way things occur normally but it may have not been so bad. But people argue that man making poor choices is just a manner of the natural way of things working out. Who knows

Now how Sarah Palin says that she doesn't like to argue about the causes for global warming, she just wants to treat the consequences...well, that's a quick fix like treating the flu with Tylenol. Are you eliminating and attacking the illness or just relieving symptoms (temporarily)?

So basically everyone was arguing that the bail-out and such are all quick fixes and don't solve the issue at hand, but it was kind of needed apparently to get things rolling and functioning again. And it's not working out that way precisely..or it's too early to tell?

[mekrob]

The Islamic Bank of Britain has been operating for a couple of years now, fairly steadily. The UK even re-wrote their national laws to allow Islamic banking. Based on their model, there is an Islamic bank that is being formed in Canada; currently its going through regulatory review and when it opens it'll have the first three branches in the Toronto area alone, with other branches in other major Canadian cities.

With UK banks' stocks as a whole down about 50% from last year, IBB is actually UP about 36% YOY. Although, it seems like IBB's stock has been hit particularly hard with this crisis, as it was 100% above last year before this crisis started. However, it is still only a $10 million dollar enterprise. Compare that with dozens of banks with revenues in the billions.

It requires a "substantial" initial deposit of circa $1000 dollars for a savings account, so I can't really get into it. I'll look into the Toronto branches when they open as I trust Canada more than the UK. For now, it's the ultimate Islamic savings account for me: silver, gold and rice.

[sixpakistan]

Originally Posted by Anderson

Basically this is not dissimilar to the Islamica 'rep crunch' , which occurred in the summer of 2007 immediately prior to the 'Crash'. Islamicans exchanged rep on the basis that it held some kind of value and the system worked based on that faith.

Several Islamican entities had grown huge accepting rep as a payment for posts and passed rep on to high risk 'sub prime' users or noobs. Once these sub prime users had accumulated a moderate amount of rep they began to recklessly spread the rep amongst each other leading to hyper-rep inflation and fall in the overall value of rep. As a result faith in this system was lost by casual users.

Many larger more established users found themselves holding a lot of 'bad rep' which held little material value and nobody wanted. In the difficult times that followed many were forced in to administration (Jamroll) whilst others were forced to merge (Jaysh + Jinnz). Some institutions catering exclusively to sub-prime markets went completely bust (brotherhood).

The IRI (Islamican rep index) fell to a very low standard and it is not uncommon to find many nobodies in the first page of the rep ranks.

So if you swap the word credit with the word rep you get an outline of how the current global credit crunch unfolded.

ahahaha

brilliant post

i would say 'most brilliant post ever,' but you left the rep caliph (me) out of it