the credit crunch: captain meltdown

Over my captain crunch cereal this morning I couldn't help but thinking. Is the world ending? And than I went a head and had my normal cereal and soda.

But, what is happening in this economic downturn? How did we get here? I asked our resident expert and economist and blogger Robert Olson to give it to us in the easiest to swallow terms.

He choose to make the meltdown simple through this dialog:

Guy 1: “Hey guys, it seems house prices have been going up for a while. Let’s go buy something!”
Guy 2: “But we don’t have any money.”
Banker: “That’s alright, we’ll just won’t charge you any interest for the first year, then you can get a new loan and repay off the old one!”
Investor: “And I’ll buy that loan and add it to a bunch of others. Then I’ll go buy insurance from Goldman Sachs in case you don’t pay.”
Everyone: “Yay! Free money!”


One Year Later:
Guy 1: “Uhhh…I need a new loan”
Banker: “Sorry, the loan is worth less than the house. Prices went down. Can’t give you a new loan.”
Investor: “That’s alright, I still got my insurance!”
Goldman Sachs: “Uhh…I kinda sold that AIG…and he doesn’t know where he put that little contract…”
Everyone: “Where did all the money go…”

I hope this helps clear things up. More to come from Robert as he tracks the economic crisis 2008 and helps us all navigate these waters for the better.

Send any economic or financial questions to
pulpistaken@gmail.com

Our other expert Elizabeth Schwarzkopf gives the smackdown on H's