subprime – Newley Purnell

A few days back, I asked some of my Twitter friends to share some good resources for understanding the subprime crisis and global credit crunch.

Wise Kwai suggested The Subprime Primer, a 45-slide presentation using (profanity-spewing) stick figures to illustrate the meltdown. I suggest giving it a read (but be mindful that it’s — obviously — simplified).

Jay Dedman recommended the helpful This American Life episode called The Giant Pool of Money, which I’ve mentioned before. It remains an excellent resource, and one that I plan to listen to again.**

Here are some other links that have caught my eye:

TheMoneyMeltdown.com: “Everything you need to know about the global money crisis of 2007-?.”

WSJ: Yes, Dow’s Record Was Year Ago Today, which contains this illustrative infographic. (Click the image for a larger version, or go to the article.)

I’ve read Zimran Ahmed’s blog, Winterspeak, since 2001, and he’s been posting some interesting thoughts on the credit crisis. Here was his take on things last week:

My prediction: deflation will continue through 2008 and 2009. The economy will continue to contract as consumers reduce consumption (and increase saving, which they must do) and businesses scale back operations so they fit the new, lower personal consumption environment. This will be a slow process, though, as the Fed and Treasury have worked mightily to obfuscate prices, and drag out the bubble deflation. Eventually, Helicopter Ben will say enough is enough and start to (finally) mail freshly printed greenbacks to households. Now we will switch from a deflationary environment to an inflationary environment, China will complete it’s transition out of the dollar, and we will get real, honest-to-God 70s style stagflation. And then we will wait for the next Volker.

I suggest reading the whole post.

RealClearMarkets.com is a good source for ongoing news. Thanks to Lan Anh N. for the tip.

The New Yorker‘s James Surowiecki has a piece called “Public Humiliation,” in which he concludes:

Considering that Wall Street firms spend all day dealing with the market, they have been slow to understand just how vulnerable they were to it. Companies like Lehman and, earlier, Bear Stearns saw going public as an excuse to take on more risk and act more recklessly, when in fact becoming a public company makes caution more important, since the margin for error is smaller, and the punishment for failure swifter. Now that the government has acted, Wall Street (or what remains of it) may yet be able to regain investors’ confidence. But long-term survival really depends on remembering the fundamental truth about playing with other people’s money: it’s a lot of fun until they suddenly decide to ask for it back.

(Emphasis mine.)

**And on a related note, thanks to newley.com reader Paul D. for pointing out a NY Times article providing the backstory on how “The Giant Pool of Money” came to be.

–> What about you? Got some good links to share? Leave them in the comments or email me (newley AT gmail.com)

For an in-depth explanation of the subprime crisis — which has now, of course, led to the current chaos involving mortgage-backed securities — look no further than “The Giant Pool of Money.” That’s the name of a special, hour-long episode produced by This American Life and NPR News. The show aired back in May and has been widely praised. From the show notes:

We explain it all to you. 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? It all comes back to the Giant Pool of Money.

I also suggest checking out the Sept. 12 episode of TAL. In the second part of that show, called “Enforcers,” producer Alex Blumberg looks the SEC’s decision to ban naked short selling. (Related: NPR recently launched Planet Money, a new podcast devoted to financial issues.)