Confused about what caused this whole credit crisis?
October 23, 2008 5:20 PM Subscribe
Confused about what caused this whole credit crisis? Let me Paddy Hirsch from Marketplace explain it to you in this surprisingly entertaining and easy to understand video. While you're there, check out his explanation of short selling and credit default swaps. I wish this guy was my finance professor.
I wish this guy was my finance professor.
posted by Mr. President Dr. Steve Elvis America at 6:07 PM on October 23, 2008 [5 favorites]
posted by Mr. President Dr. Steve Elvis America at 6:07 PM on October 23, 2008 [5 favorites]
Well, I guess this guy's going to make a fortune shorting the US dollar as it "goes down to zero." Good for him.
posted by alexei at 6:15 PM on October 23, 2008
posted by alexei at 6:15 PM on October 23, 2008
Was gonna post these, but then I didn't. Now I must live with knowing what might have been.
posted by JHarris at 6:18 PM on October 23, 2008
posted by JHarris at 6:18 PM on October 23, 2008
Thanks, I'm enjoying these.
posted by good in a vacuum at 6:32 PM on October 23, 2008
posted by good in a vacuum at 6:32 PM on October 23, 2008
Ugh, the analogy of the credit crisis with banks roped together starts to fall apart when he calls the "bad debt" excess weight held in each bank's "rucksacks". The physics don't work :)
If all those climbers have heavier rucksacks, then the whole chain is actually safer.
posted by storybored at 7:43 PM on October 23, 2008
If all those climbers have heavier rucksacks, then the whole chain is actually safer.
posted by storybored at 7:43 PM on October 23, 2008
I thought it was the last dewdrops of stink from Reagan's trickle-down armpits annointing an assortment of long-term-appointment government egomaniacs who watched if not encouraged a whole bunch of Chief Executive Fratboys to act like total fucking douchebags.
posted by seanmpuckett at 7:45 PM on October 23, 2008 [2 favorites]
posted by seanmpuckett at 7:45 PM on October 23, 2008 [2 favorites]
On second thought, the other thing the analogy is missing is the whole issue of lack of transparency. The banks don't know who is solvent and who isn't.
posted by storybored at 7:48 PM on October 23, 2008
posted by storybored at 7:48 PM on October 23, 2008
I wish this guy was my finance professor.
posted by CrunchyFrog at 8:10 PM on October 23, 2008 [2 favorites]
posted by CrunchyFrog at 8:10 PM on October 23, 2008 [2 favorites]
I don't think the climbing expedition explains anything. It's too simplistic. Just like Marketplace itself.
posted by up in the old hotel at 8:38 PM on October 23, 2008
posted by up in the old hotel at 8:38 PM on October 23, 2008
No, I was never confused about the credit crisis. I knew it was caused by greedy fuckheads, and asshole economists. Like Enron, they think that by moving money around often enough that more money becomes real from the imaginary. If they only put the same effort into actually creating something and doing work...
That said, it was sorta entertaining, but I can't decide on what level...
Level 3?
posted by Eekacat at 8:44 PM on October 23, 2008
That said, it was sorta entertaining, but I can't decide on what level...
Level 3?
posted by Eekacat at 8:44 PM on October 23, 2008
As it's always been, there's the bailers and the bailed. Grab a bucket.
posted by larry_darrell at 9:22 PM on October 23, 2008
posted by larry_darrell at 9:22 PM on October 23, 2008
John Bird and John Fortune explain the Subprime Market Crisis—amusingly achieved in less than nine minutes.
posted by Korou at 11:04 PM on October 23, 2008 [2 favorites]
posted by Korou at 11:04 PM on October 23, 2008 [2 favorites]
Is there anyone left who doesn't understand this stuff? Is what we really need more folksy metaphors? I mean, I haven't seen it but that's what it sounds like this based on storybored's comment.
posted by delmoi at 6:20 AM on October 24, 2008
posted by delmoi at 6:20 AM on October 24, 2008
Is there anyone left who doesn't understand this stuff? Is what we really need more folksy metaphors?
*raises hand*
I still only sort-of understand this. I will take all of your folksy metaphors mixed in with heavy-sighing and eye-rolling. I'm a little slow.
posted by grapefruitmoon at 7:22 AM on October 24, 2008
*raises hand*
I still only sort-of understand this. I will take all of your folksy metaphors mixed in with heavy-sighing and eye-rolling. I'm a little slow.
posted by grapefruitmoon at 7:22 AM on October 24, 2008
Is what we really need more folksy metaphors?
I think not, but say the banks are like alligators. They live in a river, they wallow in the mud, and they eat ducks. Their business is selling "mortgages" to the ducks, an arrangement in which the alligator promises to let the duck live, in exchange for the promise that it'll provide some little ducklings that will grow up for the alligator to eat later. Sometimes the ducklings don't make it, they get eaten by a fox, or an eagle, or their mother loses her job at the pond and can't provide for them; but mostly enough of them survive to pay off the mortgage by getting eaten by alligators with enough left over to keep the ducks going.
The alligators are happy with this arrangement. They give mortgages to any duck who wants one, even the ugly ones. They are owed more ducklings than they can possibly eat, so they start making up collateralized duck obligations to sell to other alligators. They grow really big, so they need to eat more and more ducks.
It gets to the point where there are way more ducklings owed to the alligators than will ever be born. The ducks start getting tired of this. What with all the little ducklings they've been producing to pay off their debts, the foxes and eagles are living well. Eventually, they can't take it any more. The ducklings are all getting eaten, and future ones are already owed to the alligators. Mortgages start defaulting, alligators realize the ones they already have are worth less, and they're not going to get to eat as many ducks as they were promised. So they starve to death. Henry drops some alligator food from his helicopter, but it just doesn't taste as good. Many people blame it all on the canard default swaps, but that's just a sideshow.
posted by sfenders at 11:19 AM on October 24, 2008 [2 favorites]
I think not, but say the banks are like alligators. They live in a river, they wallow in the mud, and they eat ducks. Their business is selling "mortgages" to the ducks, an arrangement in which the alligator promises to let the duck live, in exchange for the promise that it'll provide some little ducklings that will grow up for the alligator to eat later. Sometimes the ducklings don't make it, they get eaten by a fox, or an eagle, or their mother loses her job at the pond and can't provide for them; but mostly enough of them survive to pay off the mortgage by getting eaten by alligators with enough left over to keep the ducks going.
The alligators are happy with this arrangement. They give mortgages to any duck who wants one, even the ugly ones. They are owed more ducklings than they can possibly eat, so they start making up collateralized duck obligations to sell to other alligators. They grow really big, so they need to eat more and more ducks.
It gets to the point where there are way more ducklings owed to the alligators than will ever be born. The ducks start getting tired of this. What with all the little ducklings they've been producing to pay off their debts, the foxes and eagles are living well. Eventually, they can't take it any more. The ducklings are all getting eaten, and future ones are already owed to the alligators. Mortgages start defaulting, alligators realize the ones they already have are worth less, and they're not going to get to eat as many ducks as they were promised. So they starve to death. Henry drops some alligator food from his helicopter, but it just doesn't taste as good. Many people blame it all on the canard default swaps, but that's just a sideshow.
posted by sfenders at 11:19 AM on October 24, 2008 [2 favorites]
sfenders: Who are the eagles and the foxes in this scenario?
posted by grapefruitmoon at 1:14 PM on October 24, 2008
posted by grapefruitmoon at 1:14 PM on October 24, 2008
Not sure. I don't claim to understand the credit crisis any better than your average duck, was just having fun. But I confess that I had in mind hedge funds, the government, and the various other sorts of players who did quite well in this little episode.
posted by sfenders at 2:31 PM on October 24, 2008
posted by sfenders at 2:31 PM on October 24, 2008
I'll never understand short-selling. I mean I understand what they're doing. But I just don't understand. And the other thread about not-really-owning-the-stock-you-think-you-own didn't make things any better.
posted by Nauip at 6:06 PM on October 24, 2008
posted by Nauip at 6:06 PM on October 24, 2008
The Bet That Blew Up Wall Street: Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis
posted by homunculus at 6:24 PM on October 26, 2008
posted by homunculus at 6:24 PM on October 26, 2008
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posted by tapeguy at 5:46 PM on October 23, 2008 [2 favorites]