By now, you’ve probably heard some or all of these phrases: frozen credit markets, mortgage backed securities, collateralized debt obligations, credit default swaps. But just what the heck do they mean? How did we get into this global economic mess anyway? Well, I’m in no mood to try to explain it to you myself, especially since several others have already gone to great lengths to produce simple guides to understanding the crisis. Here are my five favorite “Recession for Dummies” primers:
![Recession]( "Recession")
The Crisis of Credit: Visualized — The thesis project of Jonathan Jarvis, a student at the Art Center in Pasadena, CA. This is an animated video that succinctly explains how the miscalculations of homeowners, mortgage lenders, investment bankers, and investors led to the credit markets freezing; also explains why leveraging leads to trouble and how the credit rating agencies got duped. Relatively easy to follow with a bit of humor thrown in to lighten the mood.- The Subprime Primer — The subprime lending meltdown explained with stick figures. This 45-slide presentation details the creation of collateralized debt obligations (CDOs) and the fallacy of perpetually rising house prices. Warning: contains PG-13 language (which makes it rather darkly comedic).
- Kiplinger.com: 15 Things You Need to Know About the Panic of 2008 — When the U.S. Federal Reserve lowered the federal funds rate from 6.5% to 1% over a three-year period from 2000-2003, money got really cheap really quickly. This forms the basis of the current crisis, as explained in the 14 points that follow. This primer concludes by saying that stable home prices are on the horizon and while the economy may suffer from aftershocks for years to come, there’s no need to lose hope (yet).
- Mint.com: A Visual Guide to the Financial Crisis — An easy-to-follow flow chart that concisely connects events together. It all begins with the mania for home ownership fueled by historically low interest rates and the belief that housing prices will always go up.
- This American Life: The Giant Pool of Money — This radio show was produced in May 2008, prior to the stock market crash of the fall, so the reporting may seem a bit overly optimistic when we listen to it now. Still, this is a fantastic in-depth look at what fueled the demand for CDOs and subprime mortgages, as told by insiders. Explains that from 2000-2007, the median household income stayed flat while housing prices went way up. To pay off debt, homeowners took out home equity lines of credit, thereby going into more debt. This is fine as long as housing prices always continue to go up. Uh-oh!
So for those of you who were in the dark about how this whole mess started, I hope these resources have helped shed some light on the origins of our current economic situation. To keep up-to-date on the current recession and other economic news, check out Tip’d Economy and Recovery.gov.
