Saturday, September 27, 2008

Pop Goes the Weasel

Things have gotten pretty bad. Banks are collapsing, home prices have hit rock bottom, loan institutions are going belly up. Unfortunately, as is expected, there hasn't been much meaningful conversation on what led to this crisis or how to escape it; rather, as expected, there's been a lot of sentimentality and finger pointing, when, in reality, almost everyone is complicit, just in different ways.

I can't say that I'm affected too much, though the institutions and businesses around me will make me pay. However, I'm not a home owner and ironically having no assets to speak of is kinda (not really, but kinda) working for me right now. Buying a home in a couple of years will prove to be a problem, but I guess I'll cross that bridge when I get to it.

Anyway... I love NPR and locally, CPR. They provide pretty good coverage of things and stuff. I suggest anyone looking to gain a little understanding of what happened to listen to This American Life: The Giant Pool of Money.

A Quick Synopsis of This Program

  • Traditionally poor countries start making economic gains by increasing productions (oil, tvs, etc.)
  • The big pool of money the world relies on for insurance purposes doubles to $70 trillion in only six years after being relatively stagnant for decades
  • After Greenspan makes it clear that interest rates will remain pretty stagnant, investors look to more lucrative investments
  • The housing boom provides investment opportunities for these investors, but the market becomes saturated (most people eligible for mortgages pretty much have them)
  • Lenders create less responsible mortgages to accommodate investors (NINA loans--no income, no assets--become wildly popular. You have people with little to no assets borrowing hundreds of thousands of dollars with no real way of paying it back.)
  • Eventually, when the housing bubble pops and home prices start to plummet, these investments prove to be very imprudent
  • Mid-sized banks who borrowed large amounts of cash to sell these investments can no longer sell them to Wall Street and become bankrupt. Larger financial institutions who invested heavily in these options lose large amounts of dough and need to be bailed out. That large pool of money, the $70 trillion mentioned up there, decreases considerably and people start freaking out, looking for security rather than profits.
  • We're screwed.
What Does This Mean

I'm not really sure and will be tuning in to find out more, but we already know that as taxpayers, we'll be paying for it though we are much less responsible for this crisis than the government and Wall Street. It'll also be pretty hard to borrow money for anyone seeking to buy a home or a car or to get money for school.

The real problem, though, is that we're American and greedy. Greed lies at the bottom of all of this. The Wall Street suits who wouldn't stop buying and trading bad mortgages when they knew better, the middlemen who exploited the unassuming and overly confident, the everyday folks who borrowed way more money than they could ever pay back--all greedy as hell. In a way, it's the American story, the something from nothing fairytale that pulls people from all corners of the globe to our humble, ramshackle piece of earth (though, of course, with outsourcing people can just stay at home and benefit). This story needs to be written with disclaimers and all sorts of warnings, but no, the cycle will continue because this is who we are, a bunch of money-grubbing, whiny-faced toddlers who need just one more piece of pie.

No comments: