They Screw up, We pay?%&#*@

Imagine you have a friend who borrows money and invests it in a venture. If it pays up, he returns the money he owes you. If not he just reneges on the debt. This is a win-win deal for him and obviously a lose-lose deal for you - the sucker. This is EXACTLY what is happening with the Credit crisis in the US.

These companies repackaged extremely risky sub-mortgages and traded them like securities, without bothering about the inherent amount of risk that was being created. During the boom these companies made tons of money on these kind of deals. The corporate management took home huge bonus for their "achievements". Now that the boom is faltering, they are threatening to take down to US economy with them. Enter Fed. It reduces the interest rate by multiple percentage points. So how does this affect you? Simple. Reduce interest rate, and inflation goes over the roof... and what is inflation? - though few people realize it, its just fancy talk for saying - the dollar in your pocket is worth lesser than before.

If you were thinking - "Hmm.. Tough luck US residents, Thank god I am not in the US" - you are missing a very basic point about how the currency system works. Countries whose major trading partners include the US, generally have lots of dollar reserves - so that the balance of trade does not push up their currencies. China is one which has used this to the point of "abuse". India is not far behind. So when the dollar goes down, these countries with their *HUGE* reserves of the dollar find themselves poorer.

So now the world is the sucker. No wonder the saying goes - Life is not fair...