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Laid Off? Now What Do You Do?

Where Did the Jobs Go?

You've probably been wondering what caused this recession. You've probably heard the complex explanation, i.e. that credit defaults swaps failed to protect the banks when the market value of collateralized debt obligations crashed because of subprime mortgage defaults. But what the heck does that mean? You've probably heard the simple explanation, i.e. that business is slow so employers have to lay off workers. But DAHH we know that. Why is business slow?

In this article, I'll attempt to explain the cause of the recession in simple terms, but not so simple that it doesn't help you understand the real cause. Understand that I'm not a professional economist and part of my explanation might be considered opinion. Then in the second part of this article, I'll tell you how to survive this recession and come out of it stronger than you were when you went in.

I know how to survive a recession because, believe it or not, this is not the first recession the world has ever experienced and, since I'm old (if you're in your 50's or younger you're just a young wiper-snapper compared to me) and I have survived many recessions.

You may have heard that the recession was caused by people speculating in real estate. Many people were speculating in real estate, but most people were just buying a home to live in, not speculating. You may have heard that many people bought homes that they couldn't afford. Many people did buy homes that they couldn't afford. But most people could afford the homes they purchased, in many cases, just barely.

Many people were deep in debt and just barley keeping up with their mortgage payments. Sure, they were going even deeper in debt, but they had been doing this for years and they probably could of did it for many more years. But then the price of gas went to over $4.00 a gallon.

In order to reduce imports of oil, much of our corn crop was diverted to making alcohol for gasoline. A lot of farm land that produced wheat, rice, and soy beans was diverted to growing corn. You may not realize it, but any plastic that isn't made from oil is made from corn (a small amount of plastic is made from coal). The point is, when the price of oil goes up, the price of everything goes up.

When prices go up, it's called inflation, and the way to stop inflation is to raise interest rates. When interest rates go up, adjustable rate mortgage payments go up. All those people that were just barley keeping up with their mortgage payments, could no longer keep up. All within a short interval, tens of thousands of people defaulted on their mortgages.

When you get a mortgage from a bank, the bank doesn't keep the mortgage. Instead many mortgages are bundled together and the bundle is called called a mortgage backed security (MBS) or a collateralized debt obligation (CDO). Banks buy these securities and earn revenue by collecting the interest from them.

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