Another Look At The Financial Crisis

I missed this NOW episode when it aired 21 November, but you (like I) can watch it on the web. It's well-researched (documented on the PBS website) and includes a long interview with a former Standard and Poor's managing director. You can read his October testimony before the House Committee on Oversight and Reform (pdf).

It's also very sobering. Things I didn't know about ratings agencies: they really didn't know how to rate the CDOs based on risky mortgages, but did anyway.

The Securities and Exchange Commission sanctions only a handful of firms as credit ratings agencies. The revenue of the top three almost tripled between 2002 and 2007. And the largest, Standard and Poor's, is owned by McGraw Hill. You're to be forgiven if you, like me, think of McGraw Hill as a publisher. Not so much anymore.

Listen to this Planet Money episode that features Peter Schiff, the president of Euro Pacific Capital. He saw the bubble in 2004 and was derided. Why isn't he an advisor to the incoming Presidential administration? (Hint: he's libertarian.)

We pretended the debt was manageable... I understand that economies grow as the result of savings, not as the result of spending. We've got the cart before the horse here. We think the key to growth is people spending money. But the only reason we're able to spend money is because there is real economic growth happening outside the United States where people are saving money that we're able to borrow. And they're producing all this stuff, that we are able to consume...

[T]he financial crisis that we're seeing ... is a real economic crisis. What's happening right now is not the problem. What's happening now is a consequence of the problem. And the problem was for years we borrowed too much money ... rather than investing that money ... we simply spent the money. And now we don't have the means to pay it back.

If you're a reader rather than a viewer/listener, then turn your attention to The End of Wall Street's Boom by Michael Lewis, author of Liar's Poker. Then ask yourself why Steve Eisman, formerly of Oppenheimer, isn't a White House advisor.