Pool of Money

Late to this but: There’s a lot of people who are doing primers or histories of the recent problems with the economy (NINJA lending, subprime, CDOs, etc.), but I think the This American Life episode Giant Pool of Money really does a great job. It’s the full hour, and it walks through several lenders from 2001 to current day. The narrator teams up with someone from NPR’s news group, and their back and forth works to move the story along much better than the normal one person setup they do on the show. Well worth an hour of your time.

One neat thing for me was hearing people talk about taking on subprime-backed mortgage instruments in bad faith. Investors/Lenders who were skeptical of the loans, thought there was too much risk, etc. – but since everyone else is doing it, and the short-term numbers they are judged by are based on what everyone else does, they had to jump into the deep-end of the mortgage pools to keep their investors interested.

This is opposed to the talking point that I keep hearing, which is that reputational effects were front and center (the lenders wanted to be around forever, so wouldn’t give out bad loans), and that the lenders were blindsided. Getting to hear an interview with a 20s millionaire bragging about buying Tara Reid champagne at a night club as one of rank-and-file mortgage employees doesn’t give one hope he was looking at the long-term gain of everyone when writing out horrible loans (or maybe it does, him realizing it was all a sham and one should get as much at the trough while it is still afloat. Others are going to collapse the economy anyway, so you might as well join in and get the chance to take Tara Reid home before you go bankrupt. Now that’s a game theory solution).

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One Response to Pool of Money

  1. Pingback: Bad Faith Finance, Nash Style. « Rortybomb

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