Best Podcast EVER?
Posted On: June 12th, 2009 by James Posted In: Local Interest • Portland Real Estate
Well the NPR radio show “This American Life” has done it again. They have created another program that clearly explains how complex the financial crisis is, and why it is so difficult to point the finger at any specific agency or company. Please do yourself a favor and make time to listen to this one hour podcast, stream it over the web or copy it into your mp3 player of choice. I learned so much from it.
They explain that a huge part of the problem lies in the role that ratings agencies (Moodys, Standard & Poors etc) currently have. In the late 30′s the FDR administration made it a law that any big pension fund or retirement fund making investments could ONLY purchase bonds that were AAA rated. That AAA rating is a virtual guarantee that the money would be paid back to the bond holder. Well, all of the subprime mortgage backed bonds got this AAA rating, and then got downgraded to B’s and C’s. When this happened all of the pension funds were LEGALLY REQUIRED to sell them ALL AT THE SAME TIME! So we all know what happens to the price of a thing when everyone is selling and literally NOBODY is buying. The price plummets.
Think of it like Movie ratings…. the AAA is the equivalent to a “G” rated movie…. Take the whole family to see it, nobody will be offended.
What has happened in the last 20+ months is the equal to you taking your family to see a G rated pixar film, and then an hour into it peoples heads start getting blown off, and they start cursing a blue streak. Everyone leaves the theater!
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