Primer: Where The Money Went

I don't know many financial pros (Hi Sahra!), but I do know my fair share of smart people. And the only consensus I've seen among them is that the financial mess the United States finds itself in is really hard to figure out. I guess that once you have billions of dollars being traded daily, a government policy designed to obfuscate and enable, and greedy people and corporations who don't care about consequences, chaos sets in really fast.

So it's nice to find a few easily-digestible breakdowns of what exactly went wrong. Most recently, Daily Kos published an organized, succinct, and funny explanation:

Wait a second. Swaps are unregulated. No one says I have to have enough resources to cover the swap, and even better, no one says I have to offer the swap to the person who actually made the loan! Hey buddy, see that loan over there? You may think it's iffy, but I think it'll hold up. In fact, I'm so sure it will, I'll sell you a credit default swap on it that pays off if it fails. You don't make the loan, you don't have to pay off on the loan, you don't have anything to do with the loan. You just pay me the fee. And if that guy loses his money, you collect. How sweet is that!

…At this point, credit default swaps have become completely divorced from the original function. A single loan can be covered by multiple swaps. There's a complicated fiscal term for this. It's called gambling, and at this stage, that's all that remains of those little "insurance" policies. They no longer protect anyone from anything, they just offer a chance to place enormous overlapping side bets on everything.

For the record, the article is overly partisan, and overlooks the role of many Democrats who enabled this mess, but fairly targets the total failure of deruglation, and the role it played in getting us into this mess.

This American Life and Ira Glass have visited this well himself; first in May, he devoted the entirety of episode 355, "The Giant Pool of Money" to the initial mortgage collapse, and again with a follow up a few weeks ago called, appropriately, "Another Frightening Show About the Economy," which is exactly what it sounds like.

I've listened to each program twice, and they're both incredible illuminating. Highly recommended.