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2 news October 31, 2008 Washington decision to baii out banks leaves taxpayers with mixed emotions, empty wallets IBY BEN LONG Reporter While the sub-prime mort gage crisis may seem irrelevant to high school students, its ef fects are wide ranging enough to be of serious concern for all Americans. The crisis has risen to a serious enou gh level that it could cost taxpayers upwards of $700 billion and already drawn comparisons to the Great Depressions. Few if any people fully un derstand the sub-prime mort gage crisis, an extremely com plex issue. People with moder ate to poor credit often receive sub-prime mortgages at very low rates. These types of loans grew in favor from 1997 to 2006 when housing prices were in creasing rapidly. At the time, people assumed home values would continue to increase, which resulted in banks awarding progressively riskier loans. Banks began of fering "Adjustable Rate Mort gages" (ARMs), which initially had low "teaser" rates (as low as 4%) but would soon increase substantially to rates most people could not afford. Low rates enticed people who did not have enough money to purchase houses be cause the buyers believed that as their home values increased, they could later refinance or ap ply for a second mortgage. Even worse than ARMs were 11,500 110,500 9,500 Dow Jones Industrial Daily Average figures illustrate the recent market decline. : 8,500 the poorly named "ninja loans," which were given to people with "no income, no job, and no assets." Additional to risky loans, many consumers purchased "investment properties" or houses bought for the purpose of selling later at profit. Many who bought these "investment properties" could not actually afford the home loans, but speculated that housing prices would continue to increase, al lowing them to pay off the loans later. High-risk loans worked out until 2006 when the hous ing bubble finally popped. As ARM rates increased, home owners could not make pay ments and soon defaulted on their loans. As more people defaulted on loans, a huge in crease in available houses re sulted, which in turn drove down house prices. With low housing prices, people were unable to refinance their ARMs, which caused a vicious cycle of home-owners defaulting on their mortgages and housing prices plummeting. Banks previously expected some sub-prime mortgages to fail, but with so many loans is sued, they assumed the profits from the others would cover these failures. When people began to default at such high levels however, banks did not make enough money to cover the delinquent loans, conse quently they lost money. In fact, banks lost so much money that they soon may be unable to cover customer withdrawals, and loans to consumers who want to buy houses or expand businesses. As the sub-prime problem increased, the government took several steps to counteract the problem, such as cutting the interest rate by the FDIC and developing the economic stimulus plan. The most recent attempt to correct the problem involved the Emergency Economic Stabilization Act. Origially riginally rejected in the House, the act was changed to garner more bi partisan support, leading to its passage in the Senate and the House. The Bill proposes the government spend $700 billion of taxpayer's money to bail out failing banks by purchasing their bad loans, attempting to support failing lenders and restore confidence in the economy. This particular bill is highly controversial because of the amount of money falling upon taxpayers. Many people are upset because company CEOs who knowingly ap proved bad loans will make millions of dollars from the buyout. The CEOs have what is known as a "Golden Para chute," which is a guaranteed multi-million dollar severance pay. Some people believe that a guaranteed million dollar severance pay encour aged CEOs to make risky busi ness decisions in the hope of making more money. Oppo nents of the bill feel that if it passes, the government will pay for these people's mistakes, allowing them exemption from any consequences for their reckless actions. Supporters of the bill con sider it extremely important for the nation's overall financial fu ture because the lending orga nizations are so large that their failure would cause a collapse of the global economy. These same supporters also claim that while the crisis may have been caused by greedy CEOs, the safety of the world economy is more important than worrying about retribu tion against the CEOs. Another important aspect of the act is taxpayers may actu ally make money off of the bill. When the government buys the bad home loans, it should be able to sell them off after the housing market rebounds for a profit. This means that while the bill will now cost Ameri cans an almost inconceivable $700 billion; they may be able to recoup much if not all of the funds at a later date. Davis delights freshman crowd IBY BETSY SnMF.RFORD Reporter Six-foot eight, 335 pounds, the once linebacker for the New England Pa triots, Keith Davis, is a serious look ing man. He also has a serious mes sage to share with young people. "If your life isn't heading in the direction you know it should be, make a U-turn quickly," said Davis to the freshman class on Thursday, Oct. 2 during third period. Overcoming obstacles is a subject Davis understands very well. Born into a poverty-stricken family, he grew up in inner-city Los Angeles where he frequently struggled in school. He later coped with the suicide of his father and overcame his personal involvement with weed. Davis real ized he needed to make a U-turn when, at his first press conference, the police showed up to charge him with possession. Despite such difficulties, Davis refuses to allow these circum stances to consume his life. He appears on numerous television shows to spread his message, he en joys a most satisfying job, and he finds comfort from caring and supportive family members. "What I'll remember most about the assembly is how Keith Davis gave examples of good dreams and bad V ■f ^ ■M— .t Retraction In our September 30 issue (Volume 84 No.l) ,we reported in "Physical changes on campus freshen atmosphere, add appeal" that the newly constructed benches along the Main walkway were built by a team of contrac tors. The benches were actually built by Mr. Degraffinreadt with the money raised by the Class of 2007-2008. We apologize for this error. Keith Davis bonds with freshman after his motivational speech. Davis took photos with students and gave out autographed football cards. Brady photo dreams. He made me think about mak ing good choices in life," said freshman Alex West. During the assembly, Davis encour aged students to make the right friends, people who respected themselves, and to be obedient to their moms. "When I looked around the auditorium and saw how happy all of the kids were, jumping up and down, I realized Keith Davis was a good speaker. He encouraged us to do better in school and change our bad habits," said freshman Sahira Gordon. Freshman Kevin Watson was also quite impressed with Davis's speaking engagement. "I recommend that he come back to Grimsley to share his important and special message with next year's fresh men," said Watson. Davis successfully worked his crowd and encouraged vocal responses. He ended his speech on a serious note: "And remember: life is not a game." Congratulations to the following seniors who have been named Commended Students in the 2009 National Merit Scholarship Program; Jack Woolard Madeline Sperling Kartik Sethuraman Sarah Shope Elena Aronson Kevin Engiar Evan Frierson Michael Kattman William Leimenstoll Virginia Miller Gianmorco Pagliai Justin Pescoscolido Henry Read
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