4 ms·

Ask HN: What do you still not understand about the Financial Crisis?

10 points by aspiringsensei 16y ago

Are HN-ers still largely in the dark about what happened inside of a CDO^2? What happened to all of those mortgages the treasury bought? What still doesn't make sense to you about the financial crisis?

augustflanagan 16y ago
A lot, but the This American Life series on it was incredibly well done. Definitely better reporting than any other news agency out there. http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money http://www.thisamericanlife.org/radio-archives/episode/355/t... http://www.thisamericanlife.org/radio-archives/episode/375/bad-bank http://www.thisamericanlife.org/radio-archives/episode/375/b... http://www.thisamericanlife.org/radio-archives/episode/365/Another-Frightening-Show-About-the-Economy http://www.thisamericanlife.org/radio-archives/episode/365/A... *My personal favorite -http://www.thisamericanlife.org/radio-archives/episode/405/inside-job http://www.thisamericanlife.org/radio-archives/episode/405/i...
- aspiringsensei 16y ago
  The Magnetar trade was fascinating, and I humbly submit that any reporting done by This American Life is likely to be better reporting than any other news agency out there.
aspiringsensei 16y ago
A parallel reddit thread: http://www.reddit.com/r/AskReddit/comments/d34k0/what_do_you_still_not_understand_about_the/ http://www.reddit.com/r/AskReddit/comments/d34k0/what_do_you...
johngalt 16y ago
If mortgage paper was trading for much less than face value why not allow people to buy their debt back? Thereby creating increased demand for the "worthless assets"; at the very least it would have created a pretty solid floor for the value of these types of investments. It also would've helped the freefalling house values because it would have given underwater homeowners a chance to be part of the solution rather than part of the problem. We all ended up buying the debt back anyway, we just used the federal government to do it.
- aspiringsensei 16y ago
  This is a great question: I am working on getting you an answer from a derivatives expert. I suspect the reason has to do with difficulty inherent to unbundling existing derivatives contracts in order to isolate "your" mortgage, but I'll circle back when I get an expert opinion.
  - johngalt 16y ago
    Why would you have to isolate "your" mortgage? Couldn't you just buy the equivalent number of shares in the correct CDO then present them as payment to your bank? Rather than try to follow the mortgage all the way through the system, just focus on each end. I'm sure this isn't allowed contractually, but there was a lot of paper torn up by the federal government during the bailout. I would argue that this change would have been less damaging to all parties invovled. Consider that everyone that owned a home would be scraping every dime they have together to put money into this system. There would still be loss, but this would stop the panic and add a floor to the housing/debt markets.
- AlexMuir 16y ago
  Buy it back with what? Nearly everyone would need to get another mortgage to buy back their debt.
  - wdewind 16y ago
    What if we had taken the bailout money and simply paid the debt directly back, instead of lending it to the lenders, and leaving the original debt still in tact. Wouldn't the companies have been saved as well as the debtors if we had simply paid back the mortages with the bailout money?
  - johngalt 16y ago
    I know many people that are buying another small house then walking away from the underwater home. This gives them a different option.
- fanboy123 16y ago
nkassis 16y ago
One thing that bothers me is why job creation hasn't started up again. Only reason I could come up with is that companies don't need more employees, they manage with what they have. I'm guessing that productivity is increasing.
- CyberFonic 16y ago
  Productivity is definitely decreasing (dropping morale, etc) but then so is demand! When there is less money to go around, there is way less demand.
Evgeny 16y ago
Why does the period of economical growth is inevitably followed by recession/depression? Why is it not possible to, maybe, regulate the economy so that economical growth would be slightly slower during the growth period, but use that artificial slowness to cushion the potential recessions? (Probably sounds very amateurish, but I have no economics background further than reading "Marketing" by Kotler)

augustflanagan 16y ago

A lot, but the This American Life series on it was incredibly well done. Definitely better reporting than any other news agency out there. http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money http://www.thisamericanlife.org/radio-archives/episode/355/t... http://www.thisamericanlife.org/radio-archives/episode/375/bad-bank http://www.thisamericanlife.org/radio-archives/episode/375/b... http://www.thisamericanlife.org/radio-archives/episode/365/Another-Frightening-Show-About-the-Economy http://www.thisamericanlife.org/radio-archives/episode/365/A... *My personal favorite -http://www.thisamericanlife.org/radio-archives/episode/405/inside-job http://www.thisamericanlife.org/radio-archives/episode/405/i...

aspiringsensei 16y ago
The Magnetar trade was fascinating, and I humbly submit that any reporting done by This American Life is likely to be better reporting than any other news agency out there.

aspiringsensei 16y ago

A parallel reddit thread: http://www.reddit.com/r/AskReddit/comments/d34k0/what_do_you_still_not_understand_about_the/ http://www.reddit.com/r/AskReddit/comments/d34k0/what_do_you...

johngalt 16y ago

If mortgage paper was trading for much less than face value why not allow people to buy their debt back? Thereby creating increased demand for the "worthless assets"; at the very least it would have created a pretty solid floor for the value of these types of investments. It also would've helped the freefalling house values because it would have given underwater homeowners a chance to be part of the solution rather than part of the problem. We all ended up buying the debt back anyway, we just used the federal government to do it.

aspiringsensei 16y ago
This is a great question: I am working on getting you an answer from a derivatives expert. I suspect the reason has to do with difficulty inherent to unbundling existing derivatives contracts in order to isolate "your" mortgage, but I'll circle back when I get an expert opinion.
- johngalt 16y ago
  Why would you have to isolate "your" mortgage? Couldn't you just buy the equivalent number of shares in the correct CDO then present them as payment to your bank? Rather than try to follow the mortgage all the way through the system, just focus on each end. I'm sure this isn't allowed contractually, but there was a lot of paper torn up by the federal government during the bailout. I would argue that this change would have been less damaging to all parties invovled. Consider that everyone that owned a home would be scraping every dime they have together to put money into this system. There would still be loss, but this would stop the panic and add a floor to the housing/debt markets.
AlexMuir 16y ago
Buy it back with what? Nearly everyone would need to get another mortgage to buy back their debt.
- wdewind 16y ago
  What if we had taken the bailout money and simply paid the debt directly back, instead of lending it to the lenders, and leaving the original debt still in tact. Wouldn't the companies have been saved as well as the debtors if we had simply paid back the mortages with the bailout money?
- johngalt 16y ago
  I know many people that are buying another small house then walking away from the underwater home. This gives them a different option.
fanboy123 16y ago

nkassis 16y ago

One thing that bothers me is why job creation hasn't started up again. Only reason I could come up with is that companies don't need more employees, they manage with what they have. I'm guessing that productivity is increasing.

CyberFonic 16y ago
Productivity is definitely decreasing (dropping morale, etc) but then so is demand! When there is less money to go around, there is way less demand.

Evgeny 16y ago

Why does the period of economical growth is inevitably followed by recession/depression? Why is it not possible to, maybe, regulate the economy so that economical growth would be slightly slower during the growth period, but use that artificial slowness to cushion the potential recessions? (Probably sounds very amateurish, but I have no economics background further than reading "Marketing" by Kotler)