the real help comes not by government injecting cash into banks, but by cash-rich countries starting its spending and releasing money into the ailing US economy. the enormous US-asia (china in particular) trade imbalance must be put to a stop (in which the US imports, consumes and borrows while asia export, save and lend)
For awhile, the imbalance between the US and asia benefits the economies on both sides. Asians get jobs in MNC firms, and their american customers get high-quality, inexpensive goods including clothing, cars, appliances, etc etc. The US also gets cheap capital from asia because the dollars that asians earn for their exports often end up invested in the bonds of the US Treasury and mortgage-finance companies such as Fannie Mae and Freddie Mac (yah, the retirees in singapore included). These purchases of US securities help keep interest rates low, which in turn helps fuel the housing boom and create new US jobs that replace the ones lost to imports
However, the mountain of US bonds that foreigners are accumulating means the US is going deeper and deeper into debt to fund its import binge, to the tune of about $3 trillion as early as 2005.
but where does the americans find money to spend?
to answer to their spendthrift nature, the clever wallstreet guys 'created' free spending money for them. for eg, today i buy a house at 500k, next month i sell it at 1mil, i earn 500k of spending money that way. the guy who bought my property at 1mil may not even have any money for downpayment, or any collateral to support his 1mil debt, but he enters the market 'freely' anyway (lack of regulations and control), with the thinking he can sell his property at 2mil few months down the road...and his bad debt was marketed as AAA investment-grade instruments to the asians and the rest of the world
and when its finally time to pay-your-debt, those who cant pay (and in fact most of them cant pay) were forced to foreclose their mortgage loan. with an increased supply of houses in US, the prices go down even further, and more foreclosures as a result (collateral not being able to support the loan)... and so on and so forth...
so u see how the current financial crisis evolved?
