An Explanation in Video Form

!!! DISCLAIMER - I posted an article regarding Credit Default Swaps by Paddy Hirsch at Marketplace.org. I received great feedback regarding his explanation(s) and have decided to include his wonderful videos in this post...enjoy!

When I found Paddy Hirsch's video regarding Credit Default Swaps, I thought it was downright amazing. My colleague, Brad, had some solid feedback in his comment.

So I will attempt to tie-in Brad's comment and Paddy Hirsch's video(s)...

"CDOs (collateralized debt obligations) and repos (repurchase agreements) make up what economists call the "Shadow Banking System"...

CDO's


Repurchase Agreements


Shadow Banking



...this system allowed banks to become over-leveraged and overly-interconnected...


Leverage


Banks Interconnected


Thus, when the collateral in the CDOs -- in 2008, these were typically based in real-estate -- began to devalue, nearly every bank and financial institution imploded."



Numerous thoughts come to mind about this whole scenario. But the thought that sticks out the most is Hyman Minsky's Financial Instability Hypothesis which I have written about before (you can read it here).

I hope viewing Paddy Hirsch's videos coupled with Brad's comment (mixed with a shot of Hyman Minsky) explains this scenario well and doesn't leave you, badly, needing a drink.

;-)

How The Risk of a Double Dip Recession is Being Overblown

How The Risk of a Double Dip Recession is Being Overblown | F Wall Street

An excellent article from F Wall Street commentator (and value investor), Cale Smith. Written at the end of July, he has skepticism about a double-dip recession. Great read.

Quantitative Easing

Another GREAT explanation from Paddy Hirsch at Marketplace. This time he explains Quantitative Easing.



NPR's Planet Money had a podcast that discussed this type of process recently. Though they don't mention it [quantitative easing] by name, if you listen closely, it's there.