the sub prime lending is no longer the issue though...it was the trigger to start it all...but now its aggresive traders fabricating rumour and speculation about companies which are then buckling under the scrutiny which then forces massive collapses in share price...which the traders then grab up and sell on when the markets rally
while everyone who has a vested interest in the banks (ie any share holders or people with savings/mortages etc) get ****ed over because they simply dont have the ability to buy and sell their investments quickly enough...
to put it simply
you put money into a pension or a savings account in a bank...they invest the money in usually long term solid companies that give small returns but mount up to large profits...they pay you your minute interest and keep the rest as their profits
occassionally investors in those companies will invest in high risk/high reward investments and most of the time they pull it off
the share price stays high and everyone wins
then a bank...in order to keep making money at a good rate, begins to lend money to people which aren't safe to lend to...now this isn't a problem when only a small % of the people default...as the banks repossess the house and sell it on thus recouping their money...but when a rise in interest rates and inflation due to other prices...ie oil price and raw material prices...the people then default on their loans in large numbers
this causes problems in the credit stream...people cant pay the banks...the banks cant pay their creditors (other bigger banks) and so the big banks then lend less to the small banks....which means all banks have to lend to people for mortages...and the whole housing market stagnates causing more economic problem
this is all happened up until this week
now comes what's happening now
stock traders see the weak position of banks and begin to short trade on them...they sell huge amounts of stock that they dont actually own in the banks...and then begin speculation that the stock price is going down by effectively lieing about the predicaments the banks are in....this causes the share price to plummet even further...the traders then invest in shares in the banks...and also in solid heavyweight shares such as mining companies and gold...this then rallies the market...increases overall share price a little...then they sell off the shares and skim off massive profits
this is usually hedge fund investors...which are usually pools of the investors own money as well as other rich business men...this is because to invest in a hedge fund you usually need to invest upwards of a £1,000,000...some even opertate a minimum of £100,000,000...so we're talking about the uber rich getting even richer while the banks they have speculated on all but collapse making normal peoples pension funds obliterated
the investors know that the government cant allow huge banks to go to the wall so they prop them up with money from the government
this means the government has to borrow money...and they borrow it from the big banks...which is where all the hedge fund managers keep their money....and so those banks do a roaring trade by making huge amounts of money in interest from loans to the government