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Understand the Banking Crisis in 59 Minutes
Posted By Jim On 03/12/2009 @ 2:21 pm In Banking | 7 Comments
Are you confused about what the deal is with all this bad bank stuff? Not really understanding why exactly our financial system is in shambles? Do you have 59 minutes? Invest an hour listening to This American Life from Chicago Public Radio’s episode #375 Bad Bank  (or read the transcript , but the show is more entertaining) and I guarantee you’ll come away with a better understanding of a large portion of the current banking crisis.
As Alex Blumberg , contributing editor to NRP’s Planet Money, and Adam Davidson  explain their bank example, you may get a little confused with all the numbers. Alex and Adam do a great job going back and helping the listener but if it’s too much for you to follow, here’s a little cheat sheet:
|$100 dollhouse||$10 capital|
|Total: $100||Total: $100|
|$95 dollhouse (-$5)||$5 capital (-$5)|
|Total: $95 (-$5)||Total: $95 (-$5)|
The show is more than just this one example but I think seeing the balance sheets written out, rather than spoken aloud, is a lot easier to understand. If you’re still in the mood for some more crisis fun, the latest Wired magazine has a story about the math function that killed Wall Street . It covers something that lots of mainstream media often glosses over but is a little tougher to digest. If you’ve heard people say “people on Wall Street never anticipated housing prices would fall” or how their “risk equations assumed housing prices would always go up,” then reading this article will give you an understanding of that.
Have you listened to the show? What did you think of it? I thought it was a great plain English explanation of the crisis and well worth the time.
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 #375 Bad Bank: http://www.thisamericanlife.org/Radio_Episode.aspx?episode=375
 transcript: http://www.thisamericanlife.org/extras/radio/375_transcript.pdf
 Alex Blumberg: http://www.npr.org/templates/story/story.php?storyId=94077777
 Adam Davidson: http://www.npr.org/templates/story/story.php?storyId=4646803
 math function that killed Wall Street: http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Thank you for reading!