understanding the credit crisis

drcha · May 8, 2009

I would really like to understand better what the hell has happened. I mean, I get the securitized loans and ridiculous amount of leverage stuff, but I want to really see the big picture. I don't totally understand the rock and roll in the world macroeconomics situation, how Lehman dragged everything down, how a money market fund broke a dollar, why AIG was so critical, what the impact/importance of the actions of various central banks so far has been, etc.

So please suggest a book or paper for me to read. I'm up for something reasonably scholarly--not a superficial or politically motivated treatment of the subject. I'm not an economist, but did take a year of econ in college, and I am a mathematician and have been investing in and studying the stock and options markets for a long time.

One person suggested Galbraith's book on the Great Depression.

thanks

BVM88 · May 9, 2009

Quote from drcha:

I would really like to understand better what the hell has happened.
thanks

Misthos · May 9, 2009

I think to view this as solely a credit crisis triggered by an irresponsiby or even maliciously run mortgage industry misses the greater point.

This is a crisis of a poorly evolved global trade and financial system. The mortgage mess - involving risky mortgages that morphed into securitized instruments layered upon by derivative bets - is but the kindling that started the fire. Did Japan's exports recently drop almost 50% due merely to faulty US mortgages? I think not.

The entire global architecture of trade and finance is a faulty one that too rapidly evolved after the fall of the USSR, China and India becoming more capitalistic and introducing a billion cheap workers into the global economy in the blink of an eye timeframe, the US post industrial economy morphing into a service sector, asset based economy ever greatly reliant on cheap credit to fuel a fictitous and unsustainable GDP....

This is much, much bigger. I have been following this for over ten years after I read David Korten's "When Corporations Rule the World." Yes, he is left leaning, but his historical treatment of the US economy, public policy that started after WWII, the Trilateral Commission, The CFR, Bretton Woods, the "Financialization" of the US economy, etc... All makes sense now. (At last to me) You may disgaree with his solutions, as I have, but he gives a great bird's eye view of the world. And this book was published in 1996 I believe.

You must also understand the role of central banking and how it evolved post Bretton Woods II.

Nonetheless, to look at this with a micro view, here's a great beginners' video:

http://crisisofcredit.com/

nutmeg · May 9, 2009

Ehhh, maybe I'm wrong, but I see the credit crisis as the natural evolution and part deux of the junk bond a la Michael Milken.

understanding the credit crisis

drcha

BVM88

Misthos

nutmeg