Writing Assignment #2

For my interview about money I wanted to get the views of two different generations. Since both individuals would have a different experience and use for money. The first person was my grandmother who I was amazed did not know whose picture was on a twenty. Even though she uses cash more than a credit card. She told me she ‘believes’ in money because it’s what makes the world go around. Also that money is a type of bartering system. She also mentioned the ways that money is mentioned worldwide – that it is a universal commodity. She believes that the same currency will be used worldwide in the future, for example in Europe with the Euro. Since the world is becoming so small due to globalization, possibly that the United States currency would be used more worldwide. She could not imagine a time people might not believe in money since money has been around for so long in one way or another. Money is important for her money because it is valuable because it has value that society puts on it. You either have it or you don’t.

Asking her if she thinks the government was spending her money wisely she said no, that is why we are broke, the government spending money we don’t have, and that the U.S. government owes a lot. On asking her if money is important to her she said that you have to be frugal, that money is a round-robin cycle. Also, that you have to spend it on priorities in life that is. You have to save money, for it’s a goal. Also a type of layaway system by controlling your spending, money keeps people working. Money takes a priority in life depending on your lifestyle. Everybody wants money, but you have to work for it, that all depends on what you want out of life.

The second person I asked is a friend who has a degree in Economics. He knew that Jackson was on a twenty. He believes in money because we need a form of representation of value in order to trade goods. Because there were problems in the way people used to trade goods in the past, there were many economic problems such as the division problem when we were on the barter system. For instance the problem in dividing something for certain types of goods is why we need money. There is the whole argument about Fiat currency being false and having no value, that all relates to how people value it in their mind. As long as people believe that the currency has value then it does. The notion of intrinsic value, some believe that some things are inherently worth something. The other reason money is important is because of portability in dealing with the shipping of goods, for example in dealing with metals. Money facilities and speeds up the trade of goods and services across all kinds of different trades across space and time. Money is also a way of tracking, a universal unit of accounting. By making accounting universal can also make taxing possible by a government, in order to give people what they want. Also, a fiat currency is important in order to smooth transactions.

He did believe in a time in which people might not believe in money, because of their belief system, such as with the Native Americans. They did not believe in the concept of ownership, such as the ownership of land. Ownership is linked to money, for example having enough money to buy almost anything in the world. Except there are some cultures and their concepts were you should not buy or should buy certain things. People do not believe in money and only in physical things that had a use to them. People did not believe in money when there is a hyper inflation and people did not believe in the Fiat currency due to extreme devaluation. Money itself is not important to him but the value it represents and the value he can use it economically is. He also did not believe that the government was using our money wisely.

Writing Assignment #1

Some of the elements involved in the mortgage crisis of the United States after 2007 help to explain the rise and fall of the housing market. One of the ways banks were saved from further failure was from TARP funds, which is a $700 billion troubled asset relief program, put into place by the United States government to rescue failing institutions. Also the funds were put into place in order to prevent a further sinking of the economy after the subprime mortgage crash. The fund used taxpayer money in order to rescue the banks, which came into place just as the U.S. economy was getting into trouble. TARP helped to bailout banks from their toxic assets which caused banks into bankruptcy. There was criticism on use of the TARP funds by both Democrats and Republicans, which argued on rescuing failing institutions. Now banks and credit card issuers have to repay the TARP funds used to boost their health.

An adjustable rate mortgage (ARM) is a mortgage rate that can go up or down through the life of the mortgage. The index rate is set up by the United States government depending on the condition of the economy. There are some risks with ARM as they are not for everyone. What happened to a lot of people during the housing boom is that they did not understand the risks involved or were misinformed. Since an adjustable rate mortgage can have a considerable more risk and payments can increase dramatically each year. There are certain clauses in ARM contracts that make it difficult for an individual to refinance or sell a home. A lot of homebuyers were enticed by the low interest rates provided by lenders and yet were ending up owning more than they could afford.

The consequences of the mortgage crisis were due to subprime lenders taking a risk on borrowers. A subprime mortgage caused a major crisis due to major delinquencies and foreclosures in the United States. Lenders decided to give subprime mortgages to homeowners who were less responsible and had bad credit. The more risky loans give a higher rate of return than the safer loans. Banks will insure the safer loans from risk for a small fee what is known as a credit default swaps (CDS). The result of the consequences has affected banks and financial markets around the world.

The banks went crazy with leverage and the over abusing of cheap credit. Banks sought good deals into better deals in order for them to make more money. The investors on Wall Street were using mortgages as investments in order to make more profit. The money the investors received is from the homeowners paying their mortgages. The investors put the mortgages they had invested into three different groups from risky to safe known collectively as collateralized debt obligations (CDO). A lender sells the mortgage to investment banks that turn puts it into a CDO, then sells pieces of that to other investors. This in turn made everyone happy and making money yet passed the risks to the next person or company in return.

Credit default swaps caused a lack of regulation which became a concern to regulators during the crisis. A CDS is used to cover many risks such as include defaults, bankruptcies and credit rating downgrades. The defaults of homeowners not paying caused them to go into default. That caused more houses to be for sell making the supply more than the demand. The effect was everyone going into bankruptcy, which explains how everyone is affected and the U.S. mortgage crisis flows in a circle. This is similar to how money flows and circulates in circles as well. Yet, two important factors that caused the outcome were greed and fraud during the mortgage crisis.