Explaining the credit crisis

October 8, 2008


Whether it’s on Reuters.com or during the presidential debates, one of the most vexing aspects of the financial crisis is that it’s difficult to explain in simple terms. Nevertheless, the problems that began in subprime mortgages have rippled outwards for more than a year, not only taking out storied names like Lehman Brothers but affecting everyday people far removed from the world of Wall Street.

Where to start? With an explanation of a collateralized debt obligation, or a TED spread? With a flow chart showing the outsized importance of Fannie Mae and Freddie Mac? You would be forgiven for clutching your head in your hands, but do not despair.

There are some very good online resources that are designed to explain the credit crisis, beginning with our own site. We can explain recent major events , which countries have been affected , and yes, even the TED spread.

Here are a few more resources from around the Web:

The Money Meltdown

Online journalist Matt Thompson — “I’m not an economist, or even an economics geek, or even someone who knows anything about economics” — created this blog in late September after despairing on finding a single site that compiles “useful, authoritative, and comprehensive information about our current financial crisis in an accessible way.”

It includes links to background, key facts, timelines and scenarios, as well as advice from money gurus and even a little light relief in the form of clips from “The Daily Show.”

This American Life/NPR

The popular public radio show “This American Life,” working in conjunction with National Public Radio, produced a radio program called “The Giant Pool of Money” in May that still stands as one of the best comprehensive pieces on the roots of the housing crisis: “We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s?”

If you can download this free podcast and spend an hour listening in the car or on your iPod, you’ll come away with a much better understanding of the underlying factors that gave rise to the crisis. There’s an accompanying daily blog, Planet Money , and the team recently recorded an update, “Another Frightening Show About the Economy.”


Wired magazine has created a Wiki — an online document that many people can edit — to help explain the crisis:

Most of us aren’t economists and aren’t expected to understand what exactly is going on on Wall Street, but we all have a pretty good sense that things aren’t going well and it’s bound to affect our economy and eventually our homes, if it hasn’t already. … So let’s get educated on the financial crisis before it’s too late. Here’s our syllabus.

The Wired page includes lessons from similar crises in the past, links to articles by economists and journalists, and questions and answers from readers using the micro-blogging service Twitter. It even promises to let you “learn from Warren Buffett.”

What sites do you find helpful in understanding the credit crisis? Leave your answer in the comments section.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

In a word: DEBT.
Too many people, institutions, corporations, governments spending money they didn’t have to buy junk they didn’t need.
And what seems to be their answer?
Give out lots more “money” so everyone’s spending will continue at this unsupportable level.

Posted by Kaikane | Report as abusive

Wall Street, and our representatives in Government, are still unwilling to admit mistakes. The engine of this vehicle needs a complete overhaul, not just a tune up consisting of sparkplugs, filters and cleaning. Our government needs to overhaul the tax policies, the lobbying and campaign policies, and our diplomatic policies. Our government and wall street are not “flat broke” monitarily, but their judgement and sense of fairness need a complete overhaul.

Posted by Fred Belz | Report as abusive

I would like to get answers to following questions:

1) who will bare the cost of printing extra 700 billion dollars?
2) Will fed suppot the new printed papers or photocopied dollars with gold or what will the new notes supported by?
3) As the Fed is not planning to be on the borad of companies after injecting the capital, who will make sure that the money comes back?
4)If i have a small company growing apples which has credit credit crisis, will Fed be ready to inject money to my capital ?

Posted by sajan varghese | Report as abusive

I understand that the banks need help in the short term. But so we all have confidence in the financial system lets have much better financial regulation from governments worldwide.

Posted by Peter Burgess | Report as abusive

There is no time to point the fingers now but the people who are the caused of it is obvious! Wall Street and the law makers which allow over flexibility to create money! Thus causing money to be lost again!

I believe the next thing to be happening from around middle of next week would be that people will be buying Gold and China currency as this will be the strongest currency and economy to withstand this global crisis! Trust me… i know as i’m here in Shanghai now!

USD will be realigning themselves over the next 3 months with Euro as they used to be as the currency was once on par with USD. The pounds and AUD will also realign with the Euro which is downwards compared with the USD… This does not mean that the US market is strong again… just that the Wall Street virus has inflicted their alies bad enough for them to be suffering now! There is at least another 10% movement downwards over the next 1 month and maybe more later!

Good Luck!

Posted by Michael Low | Report as abusive

We actually have a number of items working negatively against us at the same time. Here is what I believe the issues are:

1. Extreme Leverage
2. Low Interest Rates
3. Too much deregulation (Glass-Stegall, uptick, GSE low income loans)
4. Negative Savings Rate in U.S.
5. Expanding Trade Deficits
6. 70% GDP is consumption
7. Importation of 70% of our oil
8. $10 billion / month war
9. Derivatives (Unregulated and Unbacked)
10. Lack of middle class jobs
11. Inability to pay down consumer and national debt
12. Lack of letting the Free-Market cleanse itself of excess

There are many other items as well that are fueling this crisis. The problem is that some of these items on this list are making other issues much more acute. Right now I believe the proper course is to stop the government intervention in the market and let the de-leveraging take place so we can set a sound bottom to build from. Right now we are heading down the road to serious price inflation which is worse for main street being those are the people all the representatives are stating they are trying to save.

Posted by Bank REO | Report as abusive