A friend sent me this transcript of an This American Life (NPR), explaining exactly how the financial crisis started, in terms you and I can understand. Here’s a brief snippet to whet your appetite:
Think how attractive a mortgage loan is to that 70 trillion dollar pool of money.
Remember, they’re desperate to get any kind of interest return. They want to beat
that miserable 1 percent interest Greenspan is offering them.
And here are these homeowners, they’re paying 5, 7, 9 percent to borrow money
from some bank. So what if the global pool could get in on that action?
There are problems. Individual mortgages are too big a hassle for the global pool of
money. They don’t wanna get mixed up with actual people and their catastrophic
health problems or debilitating divorces, and all the reasons which might stop them
from paying their mortgages.
So what Mike and his peers on Wall Street did, was to figure out how to give the
global pool of money all the benefits of a mortgage – basically higher yield – without
the hassle or the risk.
Ken Stewart’s blog, ChangeForge.com, focuses on the collision between the constantly changing worlds of business and technology. Ken is also the Director of Technology at Kearns Business Solutions.
