Credit Crisis Confusion: the one-act play
Just how did we get into this credit crisis? The ongoing story is full of confusing terms and obscure financial products. Even the sellers didn't know what they were. The Marketplace Players try some out.
Man covering face with card full of question marks (iStockphoto)
More on The Economy, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: We read you some of our letters yesterday. Just a small sampling of the loads of e-mail we've gotten from people who're really angry about this bailout or rescue package or call it what you will.
What's not so clear to many more of you is exactly how we got here in the first place. Investigations into this crisis are beginning to show that when it came to the exotic securities at the heart of the credit freeze, not even the experts -- people who were doing the buying and selling -- really knew what they were getting into. So, we asked the Marketplace Players for a refresher.
Seller: [sound of door opening] All right. So glad to hear the Union of Mothers and Nurses Pension Fund is keen to invest with us, Mr. Moron.
Buyer: Actually, That's Mah-RONE.
Seller: Oh, do pardon me.
Buyer: Happens all the time. Now, we really took a hit when Lead Paint Toyco went under, so we'd like some big, quick returns here.
Seller: Then have I got the product for you. It's called a reverse sub-micro-standard mortgage shadow security and -- do you hold a degree in rocket science?
Buyer: Nope.
Seller: Hmm. Well then, simply put, what we do is take semi-insured debts that've been sold to us from inelastic bubble markets, vertically resell, then unbundle the revenues according to Moody's astro-logarithm.
Buyer: Astro ...
Seller: Astro-logarithm, which gives a monetized valuation that has itself been subdivided into A-3 and G-minus pumpkin patch. You following?
Buyer: Not at all!
Seller: Great; me neither, really! This thing was invented by some eggheads we keep in a cave.
Buyer: Please, continue.
Seller: Right. So, I think the Q-grades are dumped and leveraged upwards across 25 underplummeries? Our unicorn gives it a kick, and presto: you've got 300 percent annual growth.
Buyer: Now, you just said "unicorn." There is such a thing?
Seller: Uhhh. Kind of? Honestly, I don't know. Don't care!
Buyer: Well, you also said "300 percent." So, I'm sold!
Seller: OK! How much you want?
Buyer: How about far more than we can afford?
Seller: [HIGH VOICE] Sweet.
Buyer: Great doing business with you, Mr. Exploiter.
Seller: Actually, that's Ex-PLAH-tee-ay.
Buyer: Whatevs!
Ryssdal: Rico Gagliano and John Rabe were the Marketplace Players today.
Comments
Comment | Refresh
From CA, 10/08/2008
The best part? Downloading the mp3 of that day's show to save Rico's high-pitched "Sweet!" as a sound file. You know you want it!
From North Bergen, NJ, 10/07/2008
Thank you for archiving this masterpiece (And all other shows). I had been after my husband to listen to it since the day it was aired - but I finally tracked it down today - 6 days later.
From Columbia, SC, 10/06/2008
Once I wiped the tears from my eyes. I could not stop thinking about this little ditty. It sounded just like the financial advisor for my IRA trying to sell me more stock when all I wanted was a safe investment for my retirement funds. Thank you so much for putting it on the www site. Most popular, with me too!!!!
From chicago, IL, 10/06/2008
my credit crisis confsusion. the ony thing I learn is once you started with credit card it's hard get out of deal.
From SD, CA, 10/06/2008
I laughed. Great job at injecting humor into this situation. It gets tiresome with listening to all the arguments occurring in the news lately.
From seattle, WA, 10/03/2008
Very funny, but I think the answer is even easier than that the 'experts' were ignorant - they were just greedy. And so were the ordinary people buying too much house.
From Durham, NC, 10/03/2008
I hurt my butt so hard laughing out of my chair that I had to download the MP3 of this night's story to prove to my sweetheart that I'm not fibbing. Thank you for maintaining a strong sense of humor and irreverence in these troubling times.
From Charleston, MO, 10/03/2008
I agree that the humor was right on and if you would just substitute the words actually used reflect the situation that got the country's finances in the mess it is in.
Subprime mortgages are ones given to individuals with less than perfect credit and/or some unconventional income sources.
These mortgages have a higher risk factor and are charged higher interest rates than conventional, income verified, collateral supported loans.
The government backed some of these loans with FreddieMac and Fannie Mae because low income individuals actually would make good homeowners if they had the money for payments and upkeep. It makes as much sense to provide mortgages as it does to provide subsidies for rent.
The problems occurred when borrowers started to be allowed to purchase more than one property based on the inflated values of the properties they wanted to purchase and they started to lose their sources of income (or their tenants did) and payments could not be made as contracted. If you can see that allowing low and no down payment loans to individuals that would pay them if they could allowed shady 'investors' to put themselves in debt with more than one lender cost them more than they had coming in over time ... then you know what helped to cause the problems.
Add in the fact that all so called collateralized loans are under collateralized in cases where nepotism and goodwill are factors instead of ability to repay and the picture fits the scenario as given in skit.
From Sonoma, CA, 10/02/2008
That was as funny as all get out! I still don't understand why we're in this mess, but I derive some comfort from knowing I'm far from alone.
From Los Angeles, CA, 10/02/2008
Worthy of the Firesign Theater!
From Seattle, WA, 10/01/2008
Great piece! I am sure that the information asked for by a prior comment may be gleaned from This American Life. Local bankers, spurred on by "money meth" [see also my bank- and first bank failure- wamu] who were part and parcel of generating liquid paper that only had to last 30 days to be someone else's problem via wall street. Wamu is said to have hired appraisers to overvalue the properties they then loaned excessive money to, well, homeless people who wanted into GW's culture of ownership.
Your Road to Ruin series will no doubt cover this better than the This American Life piece did- but some of us know too much already. Now we may need to die.
From League City, TX, 10/01/2008
Your piece on Credit Crisis Confusion was great. The problem is, it is something that needs to be understood and not just poked fun at. Let's hear about the source and cause of the bad mortgages, and accounting at Fanny and Freddy, and who profited from them, and who cried wolf, and who refused timely action.
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.