The Crisis of Credit Explained!
I think this video does a fantastic job of explaining the credit crisis in simple terms. It doesn’t really discuss some of the newer developments, and it certainly over-simplifies some of the issues at points along the line. But it explains the events that initially got us into this mess about as clearly and succinctly as they can be explained. If you’re new to the economics of the credit crisis, you may still be a little shaky after a single viewing, but you’ll certainly understand things much better. And even if you consider yourself a financial pro, you’ll likely have a clearer understanding of how the various problems facing banks, lenders, investors, and homeowners are connected after watching this. It’s 11 minutes long but its definitely worth it. And don’t forget to share your thoughts about it in the comments!
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March 6th, 2009 at 1:38 pm
That was an informative presentation. Do you see any good solutions for getting our country out of this mess?
March 10th, 2009 at 5:31 pm
Well that’s the million dollar question isn’t it? Or trillion dollar as the case may be. I think the “credit crisis” will resolve over time through the bank bailout and several of the provisions of the stimulus (those that subsidize business loans and provide relief for homeowners, etc). But while the events described in this video are what sparked our current financial situation, it has now become more complicated.
I think what we need to worry about at this point is minimizing the depth of our recession, thereby limiting its duration. And I think most people agree that the way to do that is simply to inject cash into the economy, preferable in a way that will promote job growth and build infrastructure. While the recently passed stimulus is not without its faults (and probably won’t work as quickly as it could because of those faults) I think it accomplishes this general goal and will prevent any major calamities.
Really there aren’t too many “doomsday scenarios” that are still on the table as far as I can tell. I think we dodged the most imminent threat when we passed the bank bailout several months back. If banks had started collapsing by the hundreds (as was predicted to happen without intervention) and people had started pulling out their cash, our economy might already be in full-collapse.
So at this point I think most agree our country will “get out of this mess”, but it will take a while. I’m banking on things going downhill through the remainder of this year and starting to look up mid 2010. The economy is a large beast to turn around.
April 16th, 2009 at 1:54 am
thanks !! very helpful post!
April 5th, 2010 at 11:28 am
Still reading about the credit crisis, there was obviously a massive amount of politics that led to the situation. It just proves to show that in the hands of the government is where a lot of these issues start.
April 7th, 2010 at 9:49 am
I think Greenspan is getting senile, today he said that you can stop asset bubbles by increasing capital requirements. That just increases the cost of credit. The next time you have a real estate bubble, you’ll have the same problem, assuming that banks are still in the business of loaning against real estate. If you want to stop this problem, then eliminate the federal subsidies for real estate development and investment, then require people in that industry to put their own money at risk instead of someone elses. If Greenspan really wants to change the banking system, though, then simply ban 95% and 90% LTV loans. Require a bigger equity cushion. BTW, the “too big to fail” argument is a fallacious one. During the Great Depression, Canada had no bank failures. The reason was that their banks were very large. The banks closed branches, etc., but none of them failed. By contrast, the US was dominated by thousands of very small banks, and we had more than 10,000 of them fail. So there is nothing inherently unsafe about a banking system dominated by large banks. The real problem with large banks is that during good times, they don’t provide enough competition for each other.