MyopicJoe
September 16th, 2008, 09:39 AM
With the recent financial turmoil on Wall Street, you'll be interested in learning how this whole mess got started. Chicago Public Radio (CPR), along with National Public Radio (NPR), has produced a straight forward explanation of what happened, who the players are, and what their motivations were.
In a nutshell:
there's this huge pool of cash that travels around the globe, looking for investments (CPR dubs this the Giant Pool of Money)
financial people in charge of this cash are under pressure to make sure it doesn't lose its value
they depend on safe investments such as U.S. Treasury Bonds
Alan Greenspan gives them the finger when he says he'll keep interest rates low
financial people freak out and look for places to invest their boss's money
someone invents this "financial product" which lumps together a huge number of high risk mortgages and splits the risk amongst many investors. this allows them to label the whole mess as being a "safe", high return investment
the Giant Pool of Money gobbles this up and demands more
desperate to start more mortgages going, lenders no longer require people to prove their future income. people just have to promise they can afford the mortgage
financial people can finally rest easy, because they found a "safe" home for their boss's money. middle men think this is insanity but they're making crazy commissions and everyone else is doing it (real estate never loses its value, right?). real estate agents are loving the skyrocketing property prices and encourage more people to buy homes. the poor guy with a part time job can get a mortgage, take out a home equity loan, and walk around with $540,000.
then...everything asplodes
CPR's excellent report can be found here (http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355). To listen to it, click on the orange "Full Episode" link, on the left side, under the picture of the crumpled dollar bill. You can also read the transcript here (http://www.thisamericanlife.org/extras/radio/355_transcript.pdf).
In a nutshell:
there's this huge pool of cash that travels around the globe, looking for investments (CPR dubs this the Giant Pool of Money)
financial people in charge of this cash are under pressure to make sure it doesn't lose its value
they depend on safe investments such as U.S. Treasury Bonds
Alan Greenspan gives them the finger when he says he'll keep interest rates low
financial people freak out and look for places to invest their boss's money
someone invents this "financial product" which lumps together a huge number of high risk mortgages and splits the risk amongst many investors. this allows them to label the whole mess as being a "safe", high return investment
the Giant Pool of Money gobbles this up and demands more
desperate to start more mortgages going, lenders no longer require people to prove their future income. people just have to promise they can afford the mortgage
financial people can finally rest easy, because they found a "safe" home for their boss's money. middle men think this is insanity but they're making crazy commissions and everyone else is doing it (real estate never loses its value, right?). real estate agents are loving the skyrocketing property prices and encourage more people to buy homes. the poor guy with a part time job can get a mortgage, take out a home equity loan, and walk around with $540,000.
then...everything asplodes
CPR's excellent report can be found here (http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355). To listen to it, click on the orange "Full Episode" link, on the left side, under the picture of the crumpled dollar bill. You can also read the transcript here (http://www.thisamericanlife.org/extras/radio/355_transcript.pdf).