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metal_geek · 08-16-2007, 12:25 PM

Reagarding putting money "INTO" the economy..

Esentially, what the central banks did is increase the member banks, accounts so that they had more money to lend out to people who where stuck with assets that people were concearned about buying. Hoping to show that the central banks believed the situation is gonna change. It also puts more money into the system as now the banks have more money to lend out to institutions who might be interested in buying some of the depericiated assets thus increasing lquidity.

Think of it like you a a part of a group of car dealership owners, and noone is buying any cars because of a bad safety record for your group, and they are all pretty junky to begin with but some more then others. You can't give your cars away, nobody is buying cars cause every day people are dieing.. you're in hard shape and wanna offer 0% financing to people to get them to buy your cars again, so you can start making a profit. Problem is you have no money, and the banks won't loan you any, cause esentially your cars are worthless because noone is buying them and the banks have no idea what they are worth, hence what you are worth. Basically the Government steps in and gives the bank some extra money. The banks now have money to risk on your operation knowing that no matter how bad, someone is gonna need a cheap car and will be willing to buy one for the right price. The community looks at you now thinking that the bank must think the cars are gonna be good again, cause they are loaning them money, and hopefully people start buying cars again so you can start making new ones to sell again..

Why would the government step in?.. or "bail out" one of these companies? Think about the car dealership again. While there were no cars selling, factories were gonna shut down, people were gonna be laid off, gas prices were gonna drop, investment was gonna dry up... and so on and so on. It made more sense for the gov to risk money on thiese companies then let them tank and cause trouble to all kinds of other areas and risk the economy moving backwards.
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Lovely Wendie99

08-16-2007, 12:25 PM	#21
metal_geek Scoring Winger Join Date: Jan 2007 Exp:	Reagarding putting money "INTO" the economy.. Esentially, what the central banks did is increase the member banks, accounts so that they had more money to lend out to people who where stuck with assets that people were concearned about buying. Hoping to show that the central banks believed the situation is gonna change. It also puts more money into the system as now the banks have more money to lend out to institutions who might be interested in buying some of the depericiated assets thus increasing lquidity. Think of it like you a a part of a group of car dealership owners, and noone is buying any cars because of a bad safety record for your group, and they are all pretty junky to begin with but some more then others. You can't give your cars away, nobody is buying cars cause every day people are dieing.. you're in hard shape and wanna offer 0% financing to people to get them to buy your cars again, so you can start making a profit. Problem is you have no money, and the banks won't loan you any, cause esentially your cars are worthless because noone is buying them and the banks have no idea what they are worth, hence what you are worth. Basically the Government steps in and gives the bank some extra money. The banks now have money to risk on your operation knowing that no matter how bad, someone is gonna need a cheap car and will be willing to buy one for the right price. The community looks at you now thinking that the bank must think the cars are gonna be good again, cause they are loaning them money, and hopefully people start buying cars again so you can start making new ones to sell again.. Why would the government step in?.. or "bail out" one of these companies? Think about the car dealership again. While there were no cars selling, factories were gonna shut down, people were gonna be laid off, gas prices were gonna drop, investment was gonna dry up... and so on and so on. It made more sense for the gov to risk money on thiese companies then let them tank and cause trouble to all kinds of other areas and risk the economy moving backwards. ________ Lovely Wendie99 Last edited by metal_geek; 05-05-2011 at 11:17 PM.