Sunday, October 5, 2008

The Financial Crisis

On Friday October 3rd, 2008, president Bush signed the $700B bailout law that will hopefully fix the crisis we find ourselves in now. But will it work, no one knows for sure. NPR's (National Public Radio's) program This American Life presented a program this weekend with the scarey title "Another Frightening Show About the Economy." The program was indeed scarey. The program was played on air this weekend around the country and also is available for listening and download on the web site. Alex Blumberg and Adam Davidson report in a terrific program all about the problems today in the Wall Street credit market and why it is so important to all of us. Yesterday, the State of California stated that they will run out of money at the end of October if they can't obtain credit. Many businesses have the same problem. The reporters talked to the actual people in the credit market and explain how it is supposed to work and the problems they now see and experience. They also explain those Credit Default Swaps, those money instruments that no one knows what they are. But Alex and Adam talked to the people who developed these problem items. You will hear how Senator Phil Gramm of Texas managed to get a bill passed in the waning days of the Clinton Administration that specifically outlawed any kind of regulation with these Credit Default Swaps. This was done in late December 2000, just before Christmas and this bill was attached to a huge budget bill that needed to get passed. Nobody in Congress probably knew what this law was all about or what the impact would be. The radio program goes on to show that the Credit Default Swaps are now a big gambling item. This seems like a big long chain and if any one link breaks, the whole thing breaks down. By the end of the program you will know more about CDS than members of congress, the president, and probably most presidents and financial officers of Wall Street firms and banks.
There have been a couple other This American Life radio stories in the last few months that are also related to the financial crisis, on September 12th, just 3 weeks ago, Alex Blumberg reported the story, "Act II, Now You SEC Me, Now You Don't." This story is part of the program, "The Enforcers", and you will find it about 35 minutes into the broadcast. This is a story about how the SEC has been asleep while the crisis has been unfolding. You will find out why presidential hopeful, John McCain wants to fire Christopher Cox, Chairman of the Securities Exchange Commission. Another story on May 9th of this year, "The Great Pool of Money." This story goes into the sub-prime home mortgage mess, how and why it got started. It's full of details and enough information to make you sick. Lets hope this $700 Billion bailout works. What are your thoughts?