If finance had some sort of animated summary there would have been gibs EVERYWHERE.
I was going to call this “Financial Crisis for Dummies” but on looking at the evidence the worst dummies in the current mess are all investors and financial “experts”, who know exactly how these things work and were STILL stupid enough to get into it.
This article is based primarily on a lecture from esteemed economics academic Alan Blinder, who pulls no punches and explains things in a detailed and surprisingly accessible way. His lecture, which is about 90 meg, can be downloaded here.
First things first: anyone who still says that this crisis was caused by people taking home loans (mortgages) that they couldn’t afford is wrong. The “sub-prime mortgage market” (“sub prime” meaning basically “people who might not pay us back”) made up 25% of the total mortgage market in the US. Now that’s a lot, but it is nowhere NEAR enough to explain the collapse of the entire global economy. This crisis only happened because a number of other aspects of the financial system were also in dangerous waters. And it is to them, the financial “experts”, to whom we can focus our blame.