The credit crunch explained

I've been looking for something like this - an explanation of the credit crunch, by an economist, in words that I can understand.

Comments

[Vinnster]

Excellent article. The real tragedy of the whole mess is the politicians, with the help of the MSM ,have sold the meltdown as failure of the free market when in reality it was the politicians and folks who live beyond their means that have caused the whole thing.

Many think Man-made Global Warming is the biggest scam sold to the public in decades...I think it is second to lie the free market failed. The true story is the free market was functioning fine until the government started forcing "Affirmative Action" loans on lenders.

As is the case with all Affirmative Action cases...it puts a unqualified person in a position they do not have the ability to handle. In jobs, they just make everyone life miserable, but when it is applied to the lending market it cases a worldwide economic downturn becasue the unqualified borrower would never be able to pay the loans.

To add insult to injury, the very perpetrators are now in the position to "fix" things by revisiting policies that have already been proven will fail.

[James P]

No point in sending that to Uncle Gordon, I suppose...

[TDK]

The usual answer to this is to point out that the proportion of subprime loans taken by Fannie Mae/Freddie Mac is small compared to the total. For example

http://www.businessweek.com/investing/insights/blog/archives/2008/09/fannie_mae_and.html

It's a pity he doesn't answer that.