12
Credit Crisis Confusion: the one-act play
Man covering face with card full of question marks
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TEXT OF STORY
Kai Ryssdal: We read you some of our letters yesterday. Just a small sampling of the loads of e-mail we've gotten from people who're really angry about this bailout or rescue package or call it what you will.
What's not so clear to many more of you is exactly how we got here in the first place. Investigations into this crisis are beginning to show that when it came to the exotic securities at the heart of the credit freeze, not even the experts -- people who were doing the buying and selling -- really knew what they were getting into. So, we asked the Marketplace Players for a refresher.
Seller: [sound of door opening] All right. So glad to hear the Union of Mothers and Nurses Pension Fund is keen to invest with us, Mr. Moron.
Buyer: Actually, That's Mah-RONE.
Seller: Oh, do pardon me.
Buyer: Happens all the time. Now, we really took a hit when Lead Paint Toyco went under, so we'd like some big, quick returns here.
Seller: Then have I got the product for you. It's called a reverse sub-micro-standard mortgage shadow security and -- do you hold a degree in rocket science?
Buyer: Nope.
Seller: Hmm. Well then, simply put, what we do is take semi-insured debts that've been sold to us from inelastic bubble markets, vertically resell, then unbundle the revenues according to Moody's astro-logarithm.
Buyer: Astro ...
Seller: Astro-logarithm, which gives a monetized valuation that has itself been subdivided into A-3 and G-minus pumpkin patch. You following?
Buyer: Not at all!
Seller: Great; me neither, really! This thing was invented by some eggheads we keep in a cave.
Buyer: Please, continue.
Seller: Right. So, I think the Q-grades are dumped and leveraged upwards across 25 underplummeries? Our unicorn gives it a kick, and presto: you've got 300 percent annual growth.
Buyer: Now, you just said "unicorn." There is such a thing?
Seller: Uhhh. Kind of? Honestly, I don't know. Don't care!
Buyer: Well, you also said "300 percent." So, I'm sold!
Seller: OK! How much you want?
Buyer: How about far more than we can afford?
Seller: [HIGH VOICE] Sweet.
Buyer: Great doing business with you, Mr. Exploiter.
Seller: Actually, that's Ex-PLAH-tee-ay.
Buyer: Whatevs!
Ryssdal: Rico Gagliano and John Rabe were the Marketplace Players today.
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Once I wiped the tears from my eyes. I could not stop thinking about this little ditty. It sounded just like the financial advisor for my IRA trying to sell me more stock when all I wanted was a safe investment for my retirement funds. Thank you so much for putting it on the www site. Most popular, with me too!!!!
I hurt my butt so hard laughing out of my chair that I had to download the MP3 of this night's story to prove to my sweetheart that I'm not fibbing. Thank you for maintaining a strong sense of humor and irreverence in these troubling times.
I agree that the humor was right on and if you would just substitute the words actually used reflect the situation that got the country's finances in the mess it is in.
Subprime mortgages are ones given to individuals with less than perfect credit and/or some unconventional income sources.
These mortgages have a higher risk factor and are charged higher interest rates than conventional, income verified, collateral supported loans.
The government backed some of these loans with FreddieMac and Fannie Mae because low income individuals actually would make good homeowners if they had the money for payments and upkeep. It makes as much sense to provide mortgages as it does to provide subsidies for rent.
The problems occurred when borrowers started to be allowed to purchase more than one property based on the inflated values of the properties they wanted to purchase and they started to lose their sources of income (or their tenants did) and payments could not be made as contracted. If you can see that allowing low and no down payment loans to individuals that would pay them if they could allowed shady 'investors' to put themselves in debt with more than one lender cost them more than they had coming in over time ... then you know what helped to cause the problems.
Add in the fact that all so called collateralized loans are under collateralized in cases where nepotism and goodwill are factors instead of ability to repay and the picture fits the scenario as given in skit.
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