Even though I am a media junkie and have been following the financial crisis I have until now found it difficult to find trustworthy sources that would explain to me in simple terms:
1) Why is it all going pear-shaped?
2) To what extent will the US government’s plan fix the problem?
3) What will it cost (because the $700bn figure is not all going to just get spent without any return now or in future to the taxpayer)?
4) Is there a better way to try to solve the problem?
5) Who is to blame and what can we/should we do to them?
The This American Life radio programme helped once before with their excellent Giant Pool of Money episode on sub-prime mortgages. They have rushed out a new episode, Another Frightening Show about the Economy from the same reporting team (Alex Blumberg and some folks from NPR news). I have to say I found it less enlightening – probably because it had to fit a lot more in – but it still helped. If you don’t want to listen to the programme (though I think you should) here’s what I took away:
1) Greedy speculators found ways to gamble on the health of companies without facing government regulation that would have limited the amount of leverage they could use.
2) It’s not clear if the bailout will work, but hey we’ve got to try something!
3) We don’t know how much of the money we’re putting on the table we’re likely to lose.
4) We should be pushing Paulson to use the latitude built into the legislation to push for “stock injection” instead of just buying up bad debt. In other words don’t just give the banks money to bail them out for their crappy decisions, insist on some equity so if the bailout works the government has some assets for all that spending.
5) TAL doesn’t really tell us who to lynch – looks like the decision not to regulate was made in a bipartisan way.
If anyone has alternative answers to my questions I would be interested to hear them – send me a comment!
Update: I see that the UK bailout looks like the stock injection option that NPR suggests most economists would favour…