The Credit Crisis0

Take a moment to revisit the credit crisis. If you keep the lessons fresh in your mind and keep your eyes open, you might just recognize the next bubble-bust cycle.

http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money

What happened? Banks extended loans to uncreditworthy individuals – NINAs or people with No Income and No Assets – and then people on Wall Street sliced the loan pools into tranches and packaged the tranches into AAA rated mortgaged backed securities, which were sold worldwide to pensions, retirement accounts, and institutional investors.

The ease with which NINAs could obtain loans caused a boom in real estate prices (i.e. the increased supply in money caused an increased demand for real assets like homes). The boom was simply not sustainable, and we all know how the story ended.

Listen to the NPR program linked to above. It does a fantastic job of explaining the crisis, and now you can put it all in perspective.

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