Bailouts and Begging

My new favorite podcast is Planet Money. As the economic turmoil has progressed from frightening to surreal, the NPR crew at Planet Money have done a wonderful job explaining the intricacies of the complex financial world in terms that are easy to understand.

Here is what I have been able to figure out so far. Forget about the subprime mortgage crisis. A huge part of the problem is these credit default swaps – to the tune of $55 trillion dollars. These “insurance policies” were not only taken out by people who lent money to protect themselves against potential loss. Financial gamblers were also taking out credit default swaps on other people’s loans! This is raw gambling. Some analysts estimate that for every CDF taken out to by a lender to protect a loan, ten other CDFs were sold by and for third parties on the same loan.