Hi Raghav,

Glad to hear from you.

As I understand it Obama is saying he would roll back the Bush tax cuts which apply to the wealthiest part of the population in order to help pay for a tax cut to the middle class. McCain on the other hand would look to further decrease taxes for the wealthiest part of the population. These two stances are pretty much in line with how Democrats and Republicans think about taxes.

Republicans seek to cut taxes for the wealthy because they are the ones that have the businesses which employ people. So the thinking there is that if you cut taxes for them, it makes them more likely to start and expand businesses which theoretically everyone benifits from.

Democrats on the other hand prefer to give tax breaks to the middle class and poor with the theory there being that they are the bulk of the population and need the money more than the rich.

Regardless of how you feel about the above, a tax increase is normally put into place because the government wants the money to spend, so they do not generally reduce the money supply.

Hope that helps. If there are any other questions or comments on this one please feel free to post as always.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Thank you for the wonderful 3 part explanation.

My pleasure thank you for watching and for the kind words I am glad you enjoyed it.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

To David Waring,

This information helped a lot, now I understand a lot of information but I dont really understand lesson 2. It might just be because I havn't learned it at school yet.

Thank you for helping me accomplish my homework

From Student

Thank you for explaining the supprime mess, at least now I sort of understand.

I don't understand the thinking that my house is worth what I can convince some other idiot to pay for it. I recently bought a house because, in my opinion, its VALUE was much greater than the other fool was asking for it. I determined value from

1. It's selling price in 1980 indexed for inflation
2. Comparing the Principal+Interest+Taxes to what I could pay in rent for a similar place
3. 5*the average household income in my area.

I'm no genius but it seems to me that even in illiquid markets with no bigger fools available, financial institutions or auditing agencys could apply a more sophisticated version of my simpleminded determination of value of my house to determine what these CDO's are worth.

Your link 'Valuing Subprime Losses' doesn't exist anymore.

Hi Dave
Watching subprime3 last night, it seemed very relative to what happened in the last couple of days, but it appears that it was posted last year. Did you update it? If not, you had incredible insight.

Tek

Hi,

Glad to hear from you.

The thing that makes it difficult to determine how much the CDO is worth is not the part where one must determine the value of the houses included, but the part where you have to calculate the likelyhood of all the people paying back their mortgages on those houses.

Hope that makes sense. If there are any other questions or comments on this one please feel free to post as always.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Hi Tek,

Glad to hear from you.

No I have not updated it but the fundamentals that caused this crisis have not changed very much, they have just gotten a lot worse. Many were expecting this so I can't really take credit but thanks for noticing anyways;-).

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

What's your opinion on what happens next? I am guessing that the market will rally over the bailout for a short bit (assuming it passes). Then a slow decline, but not steady, rather small "hunks" over and over as bad news comes out one after the next. My guesses are the next hunk is Oct earnings, and the one after is when no one buys anything for xmas and the retail numbers come out. Your thoughts on short and long term outcome of all this?

Tek