The exciting world of Credit Default Swaps

I just listened to the This American Life episode Another Frightening Show About the Economy, a followup to their earlier show The Giant Pool of Money. The earlier show explained the mortgage crisis in terms anyone can understand. The new show explains how the problems of the mortgage industry have spread to the rest of the economy.

In particular, it explains:

  • What a Credit Default Swap is, and how it turned from something harmless into something disastrous;
  • What the commercial paper market is;
  • Why AIG nearly collapsed and needed to be bailed out, and how the bailout was carried out;
  • How the rest of the financial system nearly collapsed;
  • Why the original $700 billion bailout plan was terrible, and how the new one (the one made into law) is slightly better in that it at least allows the right thing to be done;
  • That the total failure to regulate a risky credit default swap market, bigger than the entire global stock market, was a totally bipartisan fuckup.

If any podcast is essential listening, this one is.