Credit Crisis

Our Financial Crisis

Credit
An arrangement for deferred payment of a loan or purchase
2. A reputation for sound character or quality; standing

mortgage
A temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.

$100,000 loan from the bank….
at 5.0% annual interest….
= $3,333 (principal) + $5,000 (interest) = $8,333 a year
Over 30 years that adds up to…
= $150,000 total interest
TOTAL PAYMENTS= $100,000 + $150,000 = $250,000

credit check
$8,333a year mortgage payment.
1/4 of your take-home pay.
$100,000 mortgage = $33,300 take home pay.
Steady income!

sub prime credit
$200,000 mortgage
$16,666 a year mortgage payment.
1/2 of your take-home pay.
$200,000 mortgage = $32,300 take home pay.

How Interest Works
You deposit money in bank.
Bank loans money to borrower (company, mortgage, car loan, etc.)
Borrower pays back loan, plus interest.
Bank pays you interest on deposit.

Fear #1: Bank Loses Your Money

FDIC
Federal Deposit Insurance Corporation

Fear #2: Companies Unable to Get Loans

New Deal

Current Plan

Citizensvs. Wall Street

Fear #3: Will Markets Learn Lesson?
Insanity: Doing the same thing over and over and expecting different results.