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Hank (and Hank and Hank and Hank and Hank) give an extremely simplified account of how we got into such a terribly gigantic financial mess in America.


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A Bunny
( - -)
((') (')
Good morning John, it's Monday, uh, sometime in the end of September. The MacBook tells me it's the 29th. Today, because I'm having a rather bad hair day, and the entire world is having a rather bad financial day, I think I'm going to try to take care of both of those things, by explaining the recent financial crisis, with a number of different hats on my head, representing exactly who I am, at the time when I am talking.

William: Hi, my name is William and I want a loan. can I have one?

Mortgage broker: In the past, we only gave loans to people who could pay the amount of the loan, but now, since the cost of your house is just going to keep going up and up and up, we've decided that we're pretty much just gonna give everyone a loan, for whatever amount that they want, and they don't have to actually prove that they'll be able to pay it off.

William: Oh! Cool! That's actually really good for me, because I don't have a really good job, and I couldn't really afford the monthly mortgage payments.

Mortgage broker: Oh do we have a deal for you! Check this out! We'll give you like no mortgage payments for like two years! And you won't have to pay like any loans at all! You just- it's free! It's like a free house!

William: Oh my God, Like two years! Well in two years I'll probably be like, the CEO of my company! And my house will obviously be worth, like 50% more, so what am I really concerned about here?

Mortgage broker: Uh nothing! You have nothing to worry about at all! Here's your loan!

William: Thank you!

Mortgage broker: Boy am I glad that I don't actually have to secure that loan! I'll just send it off to the bank! And they'll have some solution for this crappy loan that I just made!

Meanwhile at the bank

Banker: We're giving out a lot of loans, but we're not seeing a lot of income from those loans, but we need to give out more loans, So what do we do? How do we get more capital, so we can give more bad loans?

Banker 2: Well I think I have an idea for us, how about we do this, we take the loans that we've got, and then we sell them. we sell them as assets. We say 'these loans will be paid back, and if they're not than then they'll be worth way more in the end anyway, and so the loans will have a great deal of worth. We'll sell them off, and people will buy them up like hot cakes, and they'll be so excited, and here's an idea: We'll give them different names! so the bad mortgages, we'll name 'Triple A' and we'll say that they're the best of the bad mortgages! and then the really bad mortgages we'll name 'Triple B' which sounds way better than 'really, really bad mortgages'! And then the ones that stink like elephant diarrhea on a hot day, we'll just not name those ones at all, and give people really great interest rates on those securities!

Banker 1: Oh my God, that kind of sounds like a good idea! And people will just buy them and we'll get more money so we can loan more money out! But wait a second if that bad mortgages all turn out to be bad, aren't we just screwing ourselves? I mean yeah we end up making more money in the short term, cause we can make a loan and then make money on that loan by selling the loan, but in the long term aren't we going to be screwed?

Banker 2: Ah ho you have the wrong vision. You see, you're looking into the future. What you need to do is think about next quarter, because that's what our investors are thinking about! You need to think about how much money we'll be making in the immediate future! Thinking two or three years down the line is not something we do here in the financial sector! And besides, housing prices will always go up and if not, the government will be there to catch us.

Banker 1: Why would the government be there to catch us?

Banker 2: Well because, my friend, if we go down, the country goes down. Don't worry they'll be there.

Two Years later

William: Aaaaaaaaaaww, I can't pay this mortgage payment! And my house is worth way less! Hold on a- let me get my calculator! D'aaagghh I knew it! My mortgage is worth way more than my house is! I can default on my mortgage and then get another mortgage and get a way better house for the same price! I'm totally gonna stop paying these mortgage payments!

Back at the bank

Banker 1: Hello?

Buyer of "securities": Hello, my name is Jeremy Hogart and I bought a bunch of your mortgage backed securities and I've recently discovered that they are worth absolutely nothing. WHAT THE FREAK IS GOING ON?

Banker 1: Very much my apologies for the inconvenience, yes lots of people bought them. In fact people bought them recently in the economies across the world, that it's possible that we may have triggered a somewhat of a tiny, massive global recession. Very sorry! Working on it right now, we'll get back to you. Please, do not call again. Bye.