Friday, March 20, 2009

5 Steps to Understanding our Financial Crisis

1. Listen to this podcast, by This American Life: The Giant Pool of Money: What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s?

2. Listen to this podcast by This American Life: Bad Bank: The collapse of the banking system explained, in just 59 minutes. (also downloadable via itunes)

3. Read this blog post at the Baseline Scenario (co-written by Simon Johnson former chief of the IMF)

4. Explain it to a friend (like me!)

5. Repeat Steps 1-4, seek more information as necessary

Also of note, this graph does more than any commentator or newspaper in explaining the heart of the problem:


It's a graph of the ratio of Consumer debt compared to GDP. As of 2007 it was the first time since the Great Depression that this ratio hit 100%, meaning that as a whole we have $13 trillion in consumer debt and $13 trillion in GDP. Guess when this ratio really started climbing? 2002-2007. Thanks W. Thanks OC, manicures, tanning salons, Hummers, ipods, big houses, hair highlights and everything else for getting us into this mess. As much as we want to blame the banks, its lack of government regulation and lack of self-restraint that got us in the mess. Go burn your credit card. NOW.

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