Tuesday, April 7, 2009
Personal lessons from the financial crisis and Bernie Madoff
- By Kevin Yu
A few weeks ago, I watched a special feature of CNBC titled House of Cards. The feature explained how the current financial crisis came to fruition. To put it briefly, it all started after 9/11, when the Federal Reserve chief in the US decreased the interest rates to try to cushion the economic impact of 9/11.
The lower interest rates encouraged people to borrow money. Many people started buying houses and, therefore, house prices started rising. To get more money to lend, financial institutions in Wall Street devised a way to package the loans and sell them to third parties. The increased money encouraged further lending, so the economy flourished and the cycle continued. However, many of the loans were given to people who actually could not afford them, hence the term subprime. Naturally, the people who couldn’t afford the loans started defaulting on their payment, which eventually led to the downfall of the financial giants, in turn affecting the global economy.
1. Don’t be greedy.
2. Have a financial education.
3. Don’t spend money that you don’t have, and don’t equate money, things or status with being best.
5. Diversify your portfolio.