I decided to put together a bit of a study packet concerning the financial crisis. I hope everyone will find this informative and helpful.
Why did the financial crisis happen?
The crisis can be traced back to two problems, one widely known, and one not so widely known:
1. Out-dated Risk Management software. Companies rely heavily (perhaps too heavily) on a software program by the name of VaR. This system was running on very old data, and did not correctly take into account the probability of a financial crisis such as this. For more information, read this New York Times article,
Risk Management.
2. The Collapse of Housing Prices and Sub-Prime Mortgages. For more information, read this article from Foreign Affairs, by Roger Altman, former U.S. Treasury Secretary:
The Great Crash, 2008.
So, how exactly did we get into this housing crisis?
It's complicated. The episode "The Giant Pool of Money" of the radio show
This American Life explains it very well. You can listen to the episode
here. Below is a brief description of what the program covers:
This American Life producer Alex Blumberg teams up with NPR's Adam Davidson for the entire hour to tell the story—the surprisingly entertaining story—of how the U.S. got itself into a housing crisis. They talk to people who were actually working in the housing, banking, finance and mortgage industries, about what they thought during the boom times, and why the bust happened. And they explain that a lot of it has to do with the giant global pool of money. (31 minutes)
*Note: This is not meant to be a debate or argument. This is simply meant to be informative and educational.
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More to come.
Understanding the Financial Crisis
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