Splain it to me

Drop everything and go listen to the latest This American Life, a followup to its brilliant Giant Pool of Money show, which explains the bailout and the bigger mess we’re in better than I’ve heard or read anywhere. Alex Blumberg, Adam Davidson, and Ira Glass have done it again — brillliant once more.

But first, you might want to lock away your belt, shoelaces, and for that matter, the cord to your iPhone headset. But you’ve probably taken those suicide-watch precautions already today given the apocalyptic, 10,000-busting day on Wall Street. Well, if you listen to the show you’ll at least understand better why we’re so fucked.

It turns out that the problem isn’t the giant pool of money. It’s the giant pool of debt. And I don’t mean our debt, legitimate debt used to buy houses and cars and finance startups and roads and send kids to college. I mean fake debt. Davidson and Blumberg explain the debt swap market and how it became an utterly unregulated $60 trillion marketplace — that’s more, they say, than all the money in all the stock markets in the world — built on no collateral or real value. It’s leverage, they call it. Ponzi scheme is another way (my way) to look at it. Giant pool of nothing is another way. Big, fat, fucking lie is another. The problem, as they explain better than I can, is that people made bets with no money in their pocket and now those losing bets are being called but we’re the ones getting kneecapped.

What became clear is that this is far bigger than bad mortgages. Those were just the pawns in a much more dangerous game. If economics correspondent Davidson is scared, so should we be. It’s worse than we thought, bigger than we thought. And it looks as if everyone on Wall Street listened to the show this morning.

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  • Tom B.

    Hey Jeff, thanks for posting this, fantastic program.

  • http://denoer.wordpress.com rgw29

    I listened to Giant Pool of Money…your links to American Life say bad request.!?! I will check it out manually via iTunes and check back to read your blog.

  • http://robertdfeinman.com/society robertdfeinman

    If you really want to get mired in the finger pointing analysis try the blogs by economists Mark Thoma and/or Brad DeLong:

    http://economistsview.typepad.com/economistsview/

    http://delong.typepad.com/sdj/

    (Mark surveys more of the literature, Brad is more polemical.)

  • http://www.citrusbegin.com Peter Levitan

    My 17 year old daughter aimed me at this Podcast.

    The HS teacher made it a part of one of her classes.

    Education actually lives on in the U.S.

  • http://www.speak-tome.com Ted Murphy

    I wish the transcript were available. Anyway, $60 trillion in credit default swaps (which is of course only one of over a dozen huge derivative pools) is the only reasonable explanation for the loony bailouts our government performed last week.

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  • Andy Freeman

    > Davidson and Blumberg explain the debt swap market and how it became an utterly unregulated $60 trillion marketplace

    Actually, it is a regulated marketplace. Almost all of this paper involved and was held by SEC regulated institutions. The hedge funds, which aren’t regulated, mostly stayed away.

    There’s a reason why you’ve only heard of brokerage houses and banks going under. The “unregulated” folks know that they’re on their own.

  • Andy Freeman
  • invitedmedia

    if we actual accounting standards in the US, then most media companies would be kaput.

  • BernieO

    It’s not just the debt, it’s also the media that was too lazy to inform the public about what was going on. In 2004, the big investment banks met with the SEC and in one 55 minute meeting convinced them to overturn the old rule requiring them to hold a specific amount of capital against debt. The commissioners voted UNANIMOUSLY to allow this travesty. Worse, accoring the the NY Times not one major media outlet covered this.
    Lest you think these financial geniuses would never act irrationally, Bear Stearns quickly moved to a ration of debt to capital of 33 to 1!!!!!

    http://www.nytimes.com/2008/10/03/business/03sec.html?em=&pagewanted=print

  • John Hanson

    Jeff,

    Bill Clinton with Laurence Summers (and Phil Gramm, et al.) pushed in 1999 for the continued hands-off approach to the virtually unregulated credit default market. Rubin was also a big backer of it and argued that the government should allow banks to gain more leverage, too. And Alan Greenspan continues to justify the credit swap market’s existence. Your “big fucking lie” description of it doesn’t add to the conversation. Do you think the aforementioned tried to scam the country, intentionally?

  • invitedmedia

    you wanna add a little context to your blame of clinton, summers, etc?

    the size of the cd market back then?

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