Posted by: Nicholas Davis | March 12, 2009

The Financial Crisis for Beginners

A few people have been asking me to explain exactly what the financial crisis is all about – and in particular, how a fall in US housing prices can cause so much turmoil in the global economy. But there are much smarter people who are also great communicators out there who have done this far better than I can.

  • A great place to start is the Baseline Scenario, which has a very informative collection of articles called “Financial Crisis for Beginners“. There are lots of links to more resources if you’re interested, including radio pieces and videos.
  • A humourous (if non-politically correct) overview of the initial sub-prime element of the crisis is the now classic “Bird and Fortune” sketch from 2008. A great clip, even if these guys are suspiciously similar to John Clarke and Bryan Dawe on Australia’s ABC television network.
  • A more technical, but still very accessible, overview of how debts get securitized, rated and traded is provided by Paddy Hirsch from Marketplace in a video here.
  • To get to grips with what people mean when they talk about “bad banks”, Daniel pointed me towards this great episode of This American Life on Chicago Public Radio called, appropriately, “Bad Bank”. Long, but very well done.
  • For more on the “fiscal stimulus” side of the story, Paul Krugman is pretty good at explaining why he thinks the government should spend now to save the economy and where the money is coming from to do it on an interview with NPR here.
  • For a “consensus view” outlook for the US and how the rest of the global economy has been affected by the crisis (as of 9/2/09), see the February edition of “the Baseline Scenario”.

What I’m looking for now is the final piece – an easy to understand link between the US situation and the spread of the crisis to the rest of the world. While I found some interesting stuff on the World Bank site about contagion, it’s all a bit too economicy. I’m looking for something that comprehensively covers the transmission of the crisis through financial instruments, macro-economic policy, trade and investor behaviour, preferably all in a humorous 10 minute video. Any suggestions?

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Responses

  1. I have two resources to recommend. Both are podcasts, because I prefer to listen to this stuff rather than stare at a computer screen. The first is the EconTalk weekly podcast. From the site:

    “The Library of Economics and Liberty carries a weekly podcast, EconTalk, hosted by Russ Roberts. The talk show features one-on-one discussions with an eclectic mix of authors, professors, Nobel Laureates, entrepreneurs, leaders of charities and businesses, and people on the street. The emphases are on using topical books and the news to illustrate economic principles. Exploring how economics emerges in practice is a primary theme.”

    http://www.econtalk.org/

    If you look through their archives you’ll find a host of interviews pertaining to the economic crisis.

    The second is NPR’s Planet Money. It’s a 10-15 minute triweekly podcast that attempts to explain the current crisis in simple terms. They also helped produce the recent This American Life podcast Bad Bank that Daniel mentioned.

    http://www.npr.org/blogs/money/

    This brings me to another point which is also the topic of your post. I think you’re heading in the right direction. There seems to be a demand out there for explaining the economic crisis to the layman. People want to understand the causes, nuances, effects. What I have found from casually perusing your blog recently is that most of the content is not really presentable to people who have little or no background in economics and finance. That’s the great thing about Planet Money: the primary goal is to explain the situation in terms most people will understand (e.g. their doll house example). I guess it comes down to who your target audience is, but my advice would be to keep it simple.

    Unfortunately I don’t have your “final piece”, the humourous video summarising the whole thing. I do have an economic crisis kitten chaser, however: http://www.youtube.com/watch?v=gY0MSuyaKMk

    • Thanks Donn, great resources, and thanks for the suggestion to make the discussion a bit more accessible. I guess I’m still finding my target audience and experimenting with both post topics and style – perhaps focusing on amateur economists and mixing it up with some more general material will help this blog become more useful for a wider community while still giving me the chance to go in depth and technical where necessary.

      Love the cats, too. Dance, kitties!


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