Explaining The Credit Crisis To University Students

Posted 9/29/2008 by smartblackboy in Labels: , , , , , , ,

Even though this is theoretically an "arts" blog - the two of our main bloggers work in the financial world.

Since the other half is working on an amazing band post right now - let me attempt to explain why some sort of bail out is needed and what all this stuff means to you, your family, and friends.

Imagine you are the president of a great company with 25 employees.

Your company has been growing steadily over the years, however to keep your company going you must complete a class from a university.

The only way for you to take this class is remotely over the internet.

You pay your tuition to the university, you do your homework, and you are doing quite well in your class, averaging about a B+.

Now one day you receive a notice from the University that they have canceled your remote class due to the fact that the University administration has mismanaged their funds and can no longer afford to have remote classes.

You are shocked. You try to find another University but they also are canceling your remote classes.

You have to take this class to keep your company going, but now there is nowhere for you take this class.

So you have to close down your company and lay off all of your employees.

Now they can't afford to pay their bills and provide for their families.

They also have no money to spend and stop going to their favorite diner in town.

The lovely gal (perhaps your sister) who works in the diner or coffeeshop no longer is getting enough tips because business is slow and now can't pay her bills. She can't buy clothes for her children, she has to go to food stamps to feed her family, and eventually her diner lets her go because the owner can't afford payroll because no one has enough money to eat out anymore.

This goes on for a while, and now people can't pay their house notes and their houses are foreclosed. This makes your town property tax go up and the price of houses in your town go down. You and your sister have moved in with your parents, but now they are even having a hard time paying for all these increased taxes. Now your parents don't have enough money to pay for your youngest brother to go college - and there is no one to lend it.

The government sees this problem and decides to help the University system out. They are going to provide some money to University but also are going to make the University increase it's tuition prices on you.

You will be able to take your class. You will be able to keep your business. Your employees will all still have jobs. They will still eat at the diner which will keep your sister at work and able to buy new clothes for her kids. You won't have to move back in with your parents who will continue to enjoy low property taxes and a good house value. Your kid brother can go to college and perhaps start a business of his own.

But you are mad because you didn't do anything and you have to pay increased tuition. It was the school's administration that was the problem and it isn't fair that you have to pay for the solution.

You are absolutely right. It isn't fair. The school administration should lose their jobs, their school's should fail, they should learn their lessons.

But where does that leave you? Your sister? Your brother? Your family?

Still without a mobile class. Still without a business. Still unemployed. Still without a home.

And we call these mobile classes - loans. We call the university a bank.

When banks can't make loans to people, good people who have always done the right thing, people like you and me, your friends and your families, all of the above (and more because I didn't even touch on the stock market and consumer confidence) happens.

To put it even more bluntly, when banks can't make loans ordinary people suffer greatly.

Sure it isn't fair that we have to foot the bill. Sure it sucks to have bail out the fat cats, who like the greedy university administrators grew rich off of our tuition money and then mismanaged it.

It is the pits.

However, losing your company, laying off your workers, losing your job, your house, not being able to get a new car if yours breaks down, not being able to afford college, not being able to buy a house if you can afford one, watching your house value decrease even more if you have one, while your property tax steady increases is definitely worse.

Maybe you don't believe this. Maybe you say this has been happening.

And you are right. But it can get worse. In fact, if left unchecked, it will get worse.

The great depression was a long time ago. People forget how bad, bad is, how bad bad can be.

Some people say, "well tough luck, let the hair go with the hide." There are homeless shelters, there is charity.

Well charity doesn't work when there is no one to donate to it. Non-profits will fail (the Red Cross is dangerously close). You can't get a job when there are no new jobs. Most jobs don't work without some sort of consumer. The less people who have jobs the less taxes are gathered. The more government services fail. It is scary. It is real. It is how our system is set up.

I don't know if the bail out is what is best for the country.

I do know it is the best real option I have heard.

I do know, contrary to our righteous indignation, this current financial crisis, if it continues, does affect us all - those on wall street, those on main street, and most importantly those on your street.

I do know that perhaps we should think about ourselves before we let our rage at the fat cats lead us all to the poor house.

1 comment(s) to... “Explaining The Credit Crisis To University Students”


Glenn Hefley said...

I've been reading quite a bit about this "slow down due to Consumer confidence" Life Ionizers had the Internet Sales today ever; Consumer confidence in my experience and according to history is really a change in consumer interest. History shows us that in Low Market periods (including the great depression) spending rose in many areas (entertainment, health, advertising etc). So the Apple drop, the Google drop and the Amazon drop are all fleeting figments of panic, and just like a few weeks ago, Google, Apple and Amazon will all climb back to their original positions.

So while this panic is going on, I'm going to drink some alkaline water, download some music to my iPhone and go see a movie, just like most of America is doing tonight.

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