Housing Crisis Explanation

Don't understand the financial catastrophe? Help has arrived. This article a week ago from Culture11 - posted by by admin@libertywire.com.

Lee

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5 Easy Pieces

Don't understand the financial catastrophe? Help has arrived.

By Conor Friedersdorf, September 22, 2008

Why is our financial system on the brink of collapse? Believe it or not, I can tell you the whole story in a single page -- as long as I'm allowed help from the easiest to understand stuff on the Internet.

Visit these 5 links and you'll once again understand the world.

#1) Background knowledge: "The Giant Pool of Money"

This is the best piece of financial journalism ever, and it doesn't even require you to read anything! Hear from a homeowner who admits to borrowing irresponsibly, a guy who got filthy rich selling loans he knew were bad, and the many threads that connect them. NPR's report covers 90 percent of what you need to know about what caused the housing crisis.

Explained: What exactly is a housing bubble? How did America get into one? Who gave out all those bad home loans? Who took them? Why didn't anyone seem to know better?

#2) Giant Companies You've Never Heard Of Fail

Some very smart people from the University of Chicago explain why it matters.

Explained: What is Fannie Mae? Who are the Lehman Brothers? What is AIG? Why did they fail? Why should you care?

#3) What's a "Credit Crunch"?

With banks and other large corporations failing, and those still solvent worrying about how much money they've actually got, it's going to be increasingly hard to borrow money:

A credit crunch happens when banks begin clinging to their money rather than lending it out. The result of this is that fewer people are able to get loans, credit cards and mortgages so things that we would buy if we had those credit facilities – such as houses, cars, holidays and so on – are no longer an option.

All that via this obscure British Web site that's probably not worth visiting.

The concern is that if consumers can't borrow, they won't spend as much. And the people who make and sell stuff won't make as much money, so they'll lay people off.

#4) The Road to Serfdom... or Salvation

Okay, now we know why we're in trouble. So how do we get out of it? Jim Manzi explains where we're trying to get--and the catastrophes that could result if we fail.

Explained: Wait, I don't have a bad mortgage or much stock -- why should I care if the government bails out failing banks? What are the risks of Congressional action? What could happen if they don't do anything? What's the best case scenario? What's the worst case?

#5) The Plan to Save Us

This brief Q&A explains the Wall Street bailout plan that Congress is considering. Extra credit: a slightly more complicated explanation of why it should terrify you.

Explained: Why would the government buy bad mortgages? Why is $700 billion the amount they're willing to spend? Is this plan unfair to some people? Does it give the Secretary of the Treasury insane amounts of power?

(Additional reading: if you've now become a finance junkie, start reading blogs by Megan McArdle, Tyler Cowen, and Paul Krugman, and the people to whom they link.)