Crisis explainer

[Ryodisis]

BBBB? Must be a new super rating! XD

[houdapurple]

thanks !

[jiyefuuu]

who here is watching for FIN310?

[mariusww1]

this guy is an alcoholic

[99mrfins]

Where's Alan Greenspan, Reagan's lovechild, when you need him? He was responsible for the Glass-Seagal act being repealed. Those who think the capitalist system will take care of itself w/o a responsible government intervening

must also believe that it was Jesus himself that preached this 'gospel'. From 1980 forward these policies have led to one crisis after another, nothing being changed, and there are those that think different results will be forthcoming.

[ppingpoong]

so... what does every1 think about paul fiani?

[qwertyuiop2669]

Mmmm bubbly

[DoBrigh]

@moreslaw people did say 'hey look what happens', but they were ignored b/c people were getting huge fees making CDOs. For details, read EConned (Yves Smith), The Big Short (Michael Lewis), Fool's Gold (Gillian Tett), Structured Finance (Janet Tavakoli), Confidence Game (Christine Richard) etc etc. The models used flawed math and many people knew it, but almost nobody listened. Then you get people who knew it, made bad CDOs anyways, then bet against them and made huge money (Goldman). Drink!

[jeanpaulfelix]

@DoBrigh Hey DoBrigh, amazing explanation!!! Thanks!!! And you're absolutely correct, the 'de-regulation' that started in the 80's is behind all of this mess

[cheesebone82]

@jeanpaulfelix

Absolutely not, though. The deregulation is not the source of the problem.. the fact remains that these loans were created with money that was supplied by the Federal Reserve at ridiculously low, unrealistic interest rates. Absent the money supplied by the FED, than banks wouldn't have had the funds necessary to write all these mortgages in the first place, and the whole crisis would have been averted by itself. This problem was created by irresponsible monetary policy.

[thadea]

@cheesebone82 Maybe the magnitude of it was made more severe because of that, but the crisis would have still occurred none the less. The regulation must be in place. That's why it was there in the first place.

[DoBrigh]

@moreslaw CDOs got very complicated, Hirsch makes it seem simple because he is a genius at explaining things. Many CDOs had their own computer model made, just for that CDO. The 'ratings agencies' were supposed to model each CDO (before rating it), but each of the three agencies models might give a different rating to the same CDO! The banks also figured out how to tweak their CDOs to 'game' the ratings models so theyd get rated higher. It was all unregulated, thanks to 'free market' ideology

[freedomfighterone]

An absolute criminal scam, and nobody got arrested.

[Sexisttroll]

somehow the bottom of the left pyramid reminds me of Angelo Mozilo... hmmm I wonder why?

[m1trekker]

Life is not so complicated - it is made complicated by people trying to fool other people.

[6642633]

Thank you

:-o This video explain it in a simple & easy way

[joesdvds]

swift advances plc and preferred mortgages are up to their eyes in this scam based on lehmans formate

[joesdvds]

swift advances plc is a typical company involved in this scam

[tkondaks]

The part I didn't understand was when he did the second bottle...how can he resell as securities the BB tiered securities a second time? And where does this second "asset manager" come in? This explanation started at 2:59.

[WhereEaglesDareWWII]

Ah ha ha ha you fucking deceitful lying JEW BITCH !!! You're not Irish you KHAZARIAN FUCK !!!

[yuppyguitar1]

How is it that a ratings agency would rate a secondary CDO based on BB debt as AAA?

[Quiltingsando]

Isn't that the same thing as a pyramid scheme that was against the law years ago?

[Farquar12345]

Excellent!

[Oooooud]

love the video, great job!

[ok131583]

With the collapse of the DEBT based monetary system, sooner or later there will be huge shrinkage of the global economy and entire industries will disappear, as there will not be enough EFFECTIVE consumer demand (the one that has money and not just bare demand). Slowly but surely we will slide back to WELL MANUFACTURED items that last, BUT VERY EXPENSIVE. What will all of this Global transformation do to YOUR life style, one can only imagine. One thing for sure, we are on the DOWN slope now.

[ok131583]

There is a MUCH broader problem that is causing this crisis. It is not just CDO mortgages etc. In the nutshell the problem is that:

All of these financial instruments were supposed to help financing production of goods and services. Now days (past 35 years or so) the only reason why companies still produce things is so they could issue DEBT. The banksters even converted our money in to someone else's DEBT. It is TOTAL speculation and INDEBTEDNESS that cause this SYSTEMIC CRISIS.

[robertwc82]

fuck interest fuck worthess fiat paper.

if you want a loan, just ask me, i would be happy to write a number on a piece of paper and ill just give it to you, you wont have to pay it back or pay interest and i wont be out of pocket, it will cost me nothing to write on worthless paper

[pussyfever]

At first sight the image with the glasses is impressive. But you get the impression that to fill the AAA-tranches, you need just little champagne (or cashflow). I think you know, that this is wrong. The biggest tranches of CDOs or CDO-squared were the AAA-tranches - usually at least 90%. And that was the problem: the subordinated tranches were to thin to bear the losses to justify the highest rating. This doesn't match with your image. Anyways for non-experts a catchy explanation.

[D4Shawn]

I like this guy a lot, and would like to find more of him/his work. What is "Marketplace"? Is it a magazine... a blog/website? Does this guy do videos elsewhere?

[Piolivers]

Outstanding presentation. Really enlightening and simple. Congratulations!

[AFRIKTODAY]

It all began when the Fed prevented the harsh recession that should have occurred after the internet bubble. Lowering interest rate to a 46 years low created an incentive for all sorts of people to borrow and invest in then lucrative activities. People were drunk on the easy money and thought they were creating wealth when in fact they were just building a pyramid of sand. Those who foresaw this bubble bet against it and made billions ( John Paulson comes to mind). Remember the Say's Law.

[robertwc82]

it all began when the Fed was created. recessions arnt some kind of nessasary evil.

[silverjunky999]

thats nice, wonder how long it took to think up this wonderful system.. im sure they are alot smarter than i. but i dont think it looks right to me oh well good luck peoples

[jgposner]

That was awesome. I heard so much of about this stuff and now I finally understand it. So is this related to derivatives? How about leveraging. I heard of we need to unwind derivatives and deleverage? I also heard that once the unwinding of derivatives and the deleveraging is done, the dollar will collapse, is that true?

[muscarine2000]

by the time everything exploded, they were making CDOs of CDO's DCOs! so my guess is that what the banks are left with in their balance sheets is junk of junk' junk! so please, don't buy cap of crap's crap with my tax money!!

[Donk696]

He doesn't say what the glasses are. I don't understand what they represent. It looks like they are the interest generated from a risk related mortgage, but then how can the second CDO manager buy interest?

Also what is a CDO, is it a crude form of a business?

[Invaderalex8]

CDO are "collateralized debt obligation", it is basically packaged mortgages that people can invest in, in a sense kind of like a stock but profit is generated from interest in the mortgages.

The glasses are basically investors-the top glass represent the investor who invested with a relatively low risk, higher risk investment as you move down.

Another asset class manger comes along and pull money from investor to invest in the highest risk available for these CDO...everyone was buying these.

[1ChocletDrop]

in other words a cdo is a group of potentially worthless group of/ homes,credit cards,or any other over priced ,high intrest crap that they paid too much 4 .now there crying 4 a bailout

[Lot3ch]

CDO's in themselves aren't that dangerous and can be "good" investments (e.g. a bond backed by a mortgage). But if you split a CDO into traunches and let's say start rating them AAA, AA, etc. while they all came from a BBB bond then the stuff gets messy.

[lettysef]

How is it possible to split BBB bond into groups containing AAA and AA ratings if they're inherently high-risk?

[Lot3ch]

That's what is so confounding. These CDO derivatives (i.e. CDO's of CDO's) are divided into sections reflecting risk. So even though the BBB bonds have inherent risk, once divided they were allowed to be chopped up into different traunches (so that the least risky of the BBB bonds get rated AAA, AA and so on - these would be the last traunches in the original BBB bonds to default). You're right that this makes no sense and ratings agencies are to blame for allowing this practice.

[DoBrigh]

@lettysef one way is that you get the new CDO 'insured' against default. only they don't call it 'insurance' they call it 'buying protection' with a 'credit default swap' from a 'protection seller' (such as AIG). IIRC Mr Hirsch has another video on Credit Default Swaps (CDS).

[phil777h]

Hopefully some of these idiots that caused this will soon be going to jail for a long time, they need to be locked up.

[Gerrrry]

Thank you for explaining that!

[ErichoTTA]

Yeah, the metaphor wasn't too bad.

[3osky]

you are genius, you really made me write my first comment ever

[colombialibit]

terrific video

[khonguna]

I like how you teach (simple and to the point)

[goskone]

So instead of holding the responsible party liable we bail them out? Good plan US Govt.

[bartjoebob]

Wallstreet CDO managers & execs knew all along this was a house of cards. Ratings agencies failed to get the right talent in the door & pay a Acompetative salary to keep an analyst on staff who understood these structures. Pensions & asset managers failed to do their diligence & evaluate the underlying structure of these CDOs by simply relying on what the understaffed, uninformed ratings agencies said.

[plizak]

Cute how these pensions funds manage 100+bn dollars each and they can't hire people smart enough to figure this out... ha ha hah ah ah ah ah a Sucks to be counting on a calpers pension!

[PaulNancyVan]

The slick trick (crime ?) was the recalibration from BBB or even junk equity status to AAA status on being "re-bottled" in the second magnum.

Somebody should be in jail for that piece of fraud.

[AndyHenryUK]

that was the reason for putting different assets into the same bottle in the first place. Bottling bad debt with robust debt and then relabeling the bottle 'contains AAA' was designed to fool people into thinking it was safe money.

Ultimately, the people who had been mis-sold mortgages that they could never afford to pay for ended up with a 2-year reduced rate period so that this bubble had a 2 year life-span.

Plenty of time for the villains to get their money and run.

[Eyesayah]

Can it really be so that the the secondary bottles were really rated at the level of the first. Clearly, it is derived so to be riskier than the first and ought to offer a commensurately higher reward incentive. Else, some folk should be going to jail.

[rfvo]

Classic ending.

[crapo87]

So what genius rated anything in the second pyramid AAA?

[adamas1971]

It's the same geniuses who rate all other debt-related securities, and have been for many decades.

[adamas1971]

that last comment was designed to answer crapo87's question.

[floreshasan]

Looks like a very clever Ponzi scheme indeed, but who engineered it? The banks are the only possible explanation but they wouldn't have gone into knowing the consecuences, and we all know how they're doing...

[teleutube]

intricate webs of collateralized debt obligations, aka "glass pyramid type" financial instruments...

when the scheme collapses...last resort, raid the winery's cellar!

[jsilver41]

Looks like a clever Ponzi scheme. Whoever created it probably left the market long before the bottom fell out.

[yuk2k]

brilliant! i will share this with my friends, but please get more than 3800 people to watch these videos. 95% of the american people have no clue what is going on in the financial system, and the media does an abysmal job of explaining it to them. the only thing that the public takes away are hot words like "recession," "depression," and "crisis." The bottom line is a fearful reluctance for consumers to spend, and a great discern for bailouts. please keep up the good work.

[ciaoidea]

very clear explanation. tnx !

[TENNISCHAMP98]

Thanks Paddy

[yupyupnopenope]

Hey, gr8 work.

[oenrilee]

Very well explained, prof!

[ciaoidea]

could the gcredit be the solution for crisis ? check the project on YouTube :) TNX 4 video explanation

[nsn100001]

Nice video. Can someone explain why the "second manager" would create these securities? It seems that when the bubble bursts they lose 'their' money. Are they paid according to the money they bring to the bank?

[kayajosette]

A lot of banks and stuff had bonus systems rewarding innovations. Therefore by creating these secondary CDOs they would benefit from bonuses (hence all the talk abt bonus schemes on the news)

[rfvo]

Cheers!! nice ending.

[jove04]

Excellent material. Well explained. Please make one and name it "Solution Explorer". Does the bail out package solve the problem? What should be the best problem solver even if it is painful for all?

[jannonymous]

and why arent these investment managers losing their jobs and their shirts? why are they receiving bonuses that come from tax money???

[upendedurn]

Awesome. It's great to find a clear-cut explanation.

[Guvnor33]

Thanks for making this. Great stuff!

[realism18]

Thankyou so much for this explanation.

Now I understand!

:)

[mokruxa]

Why people stopped paying for the mortgage (from "first bottle" ) ?

[t3hOutlaw]

I bet he's a pro at pictionary.

[soularimus]

Cheers _b

added

[UltrasonicMailman]

Thanks again marketplace!! I love your show and my day is not complete without it. You really give the amateurs a decent grasp of market conditions.

[chibanach]

And then all the investors who invested in those products drank all that champagne in sorrow.....

[pwettywipples]

Thanks for that, it's good.

[9777fire]

Can you say...derivatives? The party's over, the clock struck 12 and it's all punpkins and mice...ouch!!!!!

[pedrinhobarbosa]

Extremely good explanation. Cristal clear

[MasterRave]

uhhhh.... no sound in here, all the other YouTube videos have sound but this one... weird... could someone tell me what he says, I cant read his lips, haha.

[mxcl]

Fabulous explanation, thanks.

[ericbodden]

Great intro, thanks a lot. Now just somebody needs to explain to me why people who are "filling the right pyramid" with the bottom-most stuff of the "left pyramid" are not all going to jail.

[ricenchopstx]

I really like Marketplace, easy review of the day's market in lay mans terms. Keep it up, I'll be listening

[Flashmusikal]

Excellent tutorial on how this whole mess has come into being. In essence, our financial institutions are reeling from the failing of what in my mind amounts to a pyramid scheme gone bad.

I'll be sharing this video with everyone I know.