This American Life- The Giant Pool of Money PDF

Preview

Summary

podcast notes ...

Description

This American Life- The Giant Pool of Money https://www.thisamericanlife.org/355/the-giant-pool-of-money ● What does the housing crisis have to do with the turmoil on Wall Street? ● Why did banks make half-million dollar loans to people without jobs or income? ● And why is everyone talking so much about the 1930s? PrologueHost Ira Glass talks with an NPR business and economics correspondent about two gatherings he attended—one at the Ritz Carlton and one at a community college in Brooklyn. The first was an awards dinner for finance professionals who created the mortgage-based financial instruments that nearly brought down the global economic system. The other was a non-profit conference for people facing foreclosure. Ira explains that today's show lays out how the finance guys and the people facing foreclosure are connected by a chain of middlemen, and that together, they all brought about the current housing and credit crisis. Act 1This American Life producer Alex Blumberg teams up with NPR's Adam Davidson for the entire hour to tell the story—the surprisingly entertaining story—of how the U.S. got itself into a housing crisis. They talk to people who were actually working in the housing, banking, finance and mortgage industries, about what they thought during the boom times, and why the bust happened. And they explain that a lot of it has to do with the giant global pool of money. ● NINA loan ○ No income no asset- no income verification loan ○ The bank will loan you money without you having to show your income or anything ● This is uncommon- banks normally would have done extensive research into the person trying to take out the loan, not just hand it over ● Global pool of money- big pool of money the entire world is saving (for natural disasters, economic crashes, etc.) ○ 70 trillion dollars in the global pool ○ People always looking to expand this pool ○ It went from 35 trill to 70 trill in just 6 years ● This increased so much because “poor” countries started making more money- increase technology, oil, natural resources, etc. ● Investors want to find a nice safe way to increase their pool so they invest in nice and safe and boring things like municipal bonds that will slowly but surely return income ● They took a big risky leap and Connected the global pool of money to residential mortgages- US housing market ○ They wanted more mortgage bonds than they were able to produce ● He needed to buy all the mortgage bonds that he could then take all of them up the

●

●

●

●

●

chain and sell them to wall street Then they created this NINA loan ○ They don’t need to provide any proof that you have a job or income or bank in the money at all ○ You don’t even need to have a pulse- they gave loans out to 23 dead people Nobody cared about if people actually paid them bc the banks sold them to wall st then they would sell them to the global pool of money ○ When they were trying to sell these loans they would ask around until they found someone who would take the loans and then pit the banks against each other Made lots of money off of giving very poor people very big loans ○ They knew in their gut that these were bad loans- but nobody worried about it bc they wouldn’t take the hit ○ All the data they had on these loans that were in production were positive and performed very well…but they were using the wrong data ■ A lot of very smart people, people that knew better, fooled themselves with this data There were agencies that rated the safety and security of different investments, most people relied heavily and trusted these ratings ○ They blessed these mortgage and said they were the highest safety- the same as a us gov bond ○ You cool take a pool of thousands of risky mortgages and create a security called “Money good” ○ But we now know that they were looking at incorrect data CDO- pool of pools ○ Buys higher risk stuff ○ “Toxic waste”

Act 2● What exactly happened during the subprime mortgage crisis ● 2003- 2006 housing market was in a speculative bubble ○ Home loans were easy to get ○ More people buying houses ○ Prices to increase ○ Rising prices caused higher demand ● People started to look at homes as investments and investments as a higher value ● People aren’t making any more money though so they couldn’t afford a new house ○ People couldn’t even pay their first month payments ● They blew up and lost all this money...