THOROUGHLY understanding the crisis

Today I've received my regular research newsletter from NBER (National Bureau of Economic Research). Among the working papers I came accross a nice in-depth analysis of the subprime crisis, and the underlying products and system that can be blamed for the current crisis.

I have to warn all u keen and interested readers out there - the paper is a good 90 pages long :-P. Here it is:

http://papers.nber.org/papers/w14358 - The Panic of 2007 by Gary B. Gorton.

REASONS for this crisis

As a follow up to my previous blog post, I would like you to understand the system behind bad loans that has brought so many companies into turmoil recently. I found a number of videos by khanacademy on youtube, that do a pretty good job at summarising the subprime crisis.

1. http://uk.youtube.com/watch?v=oosYQHq2hwE&feature=related
2. http://uk.youtube.com/watch?v=eYBlfxGIk28&feature=related
3. http://uk.youtube.com/watch?v=q0oSKmC3Mfc&feature=related
4. http://uk.youtube.com/watch?v=XjoJ9UF2hqg&feature=related
5. http://uk.youtube.com/watch?v=8IR5LefXVPY&feature=related
6. http://uk.youtube.com/watch?v=wYAhlTHIBT4&NR=1
7. http://uk.youtube.com/watch?v=aAfMps_VyOY&feature=related
8. http://uk.youtube.com/watch?v=s6UYa2nwaDw&feature=related

The first 3 videos look at Mortgage backed Securities, 4th clip explains CDOs, and remaining 4 videos address housing market and the mortgage system that was at fault. Carefully watch these youtube videos, they explain the problem in its entirety. I found them extremely easy to follow so I'm sure you will as well and maybe even easier.

FTSE-100 & 19th September

Wow, the current stock-markets are serriously volatile!

The 19th Sept 2008 (last Friday) has seen an 8% rise on the FTSE-100. The biggest rise since its inception on 3 January 1984. This was the reaction to US, Bush backed plan to pump $700bn into the markets http://news.bbc.co.uk/1/hi/business/7628144.stm. Even thought this plan still needs congress approval (which it is expected to get next week, before the pre-election break commences), it has immediately spurred immense optimisim within investor circles.

A 700bn fund that promises to buy out a lot of bad loans and CMOs, CDOs, ... is a pretty hefty rescue package. It is a real strategy / plan rather than tactical ad-hoc case based interventions that we have seen up to this point.

A couple links to nice educational videos about the products behind the mortgage/debt crisis are below:

• Mortgage Backed Securities - http://www.youtube.com/watch?v=DHLcD405VsI&feature=related
• Structured Securities - http://www.youtube.com/watch?v=-Ycjn8xzszA&feature=related
• Asset Backed Securities - http://www.youtube.com/watch?v=3_pRi0BThJM&feature=related

have fun!!