If You Really Want To Understand How The Financial Crisis Happened…

from the listen-here.. dept

In my initial post on the financial crisis, I suggested listening to an older episode of the radio program This American Life, where they described how the mortgage bubble happened, called “The Giant Pool of Money.” It’s a great way for non-financial types to understand the basic issues involved in the mortgage industry and how things spun out of control. I also mentioned that the guys who did that show have been working on a daily blog/podcast for NPR called Planet Money, which is also fantastic. They also put together yet another show for This American Life this past weekend to explain what happened over the last few weeks and why it is a Really Big Deal, rather than a situation where we should just “let the banks fail.” I finally got a chance to listen to it, and it’s great. It’s called Another Frightening Show About the Economy, and it gets into even greater detail, peeling backing the complicated onion of our financial system, layer by layer, in a way that non-financial types should mostly understand. It is simplified — no doubt — but it’s by far the best explanation I’ve heard anywhere. If you’re trying to understand concepts like leverage, credit default swaps and the commercial paper market, go take a listen. If you already listen/read Planet Money, there are some repeat clips, as well as some new ones, and the whole show pulls a lot of stuff together from the last couples weeks of Planet Money.

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Comments on “If You Really Want To Understand How The Financial Crisis Happened…”

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Mike (profile) says:

Re: Re:

Let the banks fail. The whole thing is a scam anyway

Clearly, you did not listen to the program.

If you do not realize how this will impact everyday consumers such as yourself, it’s pretty silly to comment as you did. And, if you don’t understand where those “insane fees” come from, then you are doing yourself a disservice to make such a claim. You are only showing your ignorance.

Eric L says:

These two episodes deserve a Peabody or Pulitzer. They explain the naked greed of everyone involved, how and why the banks themselves even don’t understand the things they were doing let alone the government, and how it’s just going to get worse. Even more, they told us why these institutions can’t fail and how if they do you, and half of America, will be up the creek.

Terrifying is an apt word.

Twinrova says:

Interesting reading, to say the least.

Before I begin: The “Frightening” segment hasn’t been transcripted yet, so I didn’t get to read it. Read the first one.

Yes, READ the first one. Can’t stand watching video on a computer.

Now, for my input. Once again, another discussion topic covers what happened, but not why it happened. No where does it explain why false mortgage information was being created. No where does it explain why no one on Wall St took measures to ensure these loans were legit. No one explains why there was an increase in ARMs.

My first inclination was to say greed, but I know better. I’ve been in this world of mortgages and I know how bankers think when signing up a new customer. They never intend to keep the loan, so they’ll do whatever the hell they can to reap the instant “gratification” of making and selling the loan.

As the topic discusses quite clearly, do this enough and there is quite a bit of money to make. So how is it the ARMs increased?

I’ve challenged the credit card industry helped and I stand by this. While there were some devious SOBs out there who took advantage of an unregulated process, there were legitimate buyers who were told their credit wasn’t sufficient enough for a fixed mortgage rate.

This whole “hiding” of information is bullshit. Hiding isn’t what happened, but turning a blind eye. No one wanted to know these loans were bad, especially given the explosion of incoming loans. Did Wall St really think the explosive increase of mortgage loans wasn’t a tell-tale sign something was wrong? Right.

But I digress. It’s pointless to point fingers now. The damage is done and we’re all paying for it. We’ll be paying for it for years.

Personally, I think everyone should just quit paying their bills altogether. Really add to the fiasco. What are they going to do, take your house and car? Please, they’ll be out of money so damn fast, they’ll give up.

I also think everyone should make a bank run. Take out your money. It’s yours. Not theirs. Use it to buy the groceries you need to live.

I love watching the Dow fall like this. It’s a reminder businesses are closing their doors for good because lenders are treating them all as idiots who can’t pay their bills (sound familiar?).

It means Mom & Pop can’t retire now because they’ve got nothing to retire on. It means our 401k savings amount to nothing more than a piggy bank instead of a retirement account.

This is a perfect opportunity for the masses who do what they’re supposed to do a chance to fight back, even knowing they won’t. They’ll continue paying their bills on time while their children struggle to get financial aid for college (which should be free anyway).

We live in a world where the express “Give a fish to a man, he eats for a day. Teach him to fish, and he eats for a lifetime.” translates to “Overprice and sell a man a fish so he can eat for a day. But dominate the oceans such that you can charge him for lessons on fishing, charge him for fishing in the ocean, charge him for the boat and supplies he’ll need, and make sure you do all this such that the man never has a chance to financially overtake you.”

Let the banks fail.

And to see this hit globally: priceless.

Anonymous Coward says:

And why did the banks go away from their historical ways of calculating who receives a mortgage? Why did they move from requiring a 20% down payment?

It didn’t start with GWB (although he did nothing to stop it) and it wasn’t caused by Barney Frank (although he also didn’t stop it) but goes all the way back to the Jimmy Carter era.

Mortgage records were reviewed and someone said “hey, minorities are being discriminated against because they are not getting their share of mortgages.” Banks said, hey, we don’t look at their color, just the credit standards. Banks that didn’t loosen up their standards were punished by the govt.

Of course, they started opening it up to minorities (read, bad credit risks).

That was bad. What happened next was worse. Of course, real estate developers and investors started to get these same loans. You can’t offer a loan to some and not others (that would be discrimination) so they jumped on the band wagon. Personally, I would love to see how many people in single residences (not investment property) will face foreclosure vs. investors, but that’s a different question.

Who is at fault? The democrats, who pushed for more home ownership. The republicans, they liked the money going into the system. The banks, they loved the profits. Everything was fine until the market switched. Lets not leave out the consumers that received these loans. They saw cheap money and they jumped at it. Didn’t they know they couldn’t actually afford that house? Where is the personal responsibility? My friend received an ARM for a renovation about 3 years ago. I asked him why he would go for an ARM when mortgage rates (and home equity rates) were at pretty much at historical low rates? His answer? It was cheaper. Of course, now it isn’t.

Is that the banks fault? This guy isn’t stupid, he is a senior Corps. of Engineer employee. He is responsible for some of the levee’s around here (of course, if I lived in New Orleans, I might question his intelligence, but ours hold) so he isn’t dumb. The bankers, are they dumb? Is Wall Street dumb? They knew the risks and they took them. They all did. Everyone involved knew the risks, they ignored them, and now the taxpayer has to pay for it.

The sad thing is, the taxpayers are the ones left standing while everyone else has a chair.

Anonymous Coward says:

Why does everyone keep blaming mortgages? Long term Capitol Management did the exact same thing in the late 90’s without using mortgage bonds. This is about leverage. When AIG can take on a TRILLION! dollars of liabilities you are going to have problems. They also used Credit default swaps to multiply the damage of any defaults that did occur. Wall street was able to come up with a system where they were actually able to lose many times more than the mortgages are worth. There were abuses by the lenders but that is a separate issue.

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