Linear Causes Of The Credit Crisis Explained

In response to the questions I've been getting from the market and clients, I've attempted to explain the course of events and processes that have led to the US credit crisis.
So how did we get ourselves into this mess?
Just like the stock market in the late 90s, the extreme price appreciation of real estate over the last 5-10 years has been stratospheric. It didn’t take an economist to sense a bubble.
What blew this bubble way up, though, was the reckless way mortgages were doled out so freely. Speculation was rampant; loans were taken out without verification of income or assets. People got in over their heads in mortgage debt, either looking for a quick buck or living beyond their means.

Now, here comes the tricky part, which explains some of the problems we are seeing today. Historically, you took out a loan with a bank and the bank might hold/own that loan until the end.
But a process called securitization really started to take off on Wall Street over the past 10-20 years. But before I explain what securitization is, remember that a mortgage loan is DEBT for you the homeowner, but an ASSET for the bank or whoever owns the mortgage.

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How Does A Faulty Forex Dealer Cheat Your Money?

Forex market is a non-centralized market. There is no common market place for Forex traders and there is no so-call ‘standard’ in foreign currency exchange price. Different Forex dealers offer very different deals to their customers.

As an individual FX trader, you depends solely on the dealer to make a transaction in your trades, thus picking up the right dealer is extremely crucial in your risk.

You may wonder how does a faulty dealer can cheat on your money as all investment call have to go thru your decisions.

Well, here's a typical example:

Often a bad dealer is not totally scams.
They are smart persons that trick money from traders that are not well-aware. These dealers, often known as retail market makers, will often encourage their clients to trade on margin and set stop loss orders, which allow the market makers to close out trades almost at will during busy markets at prices they have set. If the market maker does not offset the trader's position, the loss generated when a stop loss is triggered becomes the market maker's gain.

Trade prices are easily skewed one way or the other depending on the retail trader's position, which is known by the market maker.
Traders can be encouraged to take risky positions just before major economic announcements. If all else fails, the market maker can quote extreme prices (known as spiking) to trigger stop loss orders while the client is at work or asleep.
The vast majority of retail FX traders are not profitable. For those losing retail speculators, much of the funds they had on deposit will be, in some form or another, transferred to the market maker.

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