Understanding the credit crisis

So, like a lot of people i have been idly wondering (i say idly, because i'm not industrious enough to actually go and learn much about it) how this credit crisis thing happened. Why on earth would banks make such risky loans, and why should i care if some people with poor credit are suddenly having problems paying their mortgages (I mean, what did they expect, right?)?

Well, i just finished listening to the latest This American Life podcast, which actually spends a whole hour talking to people at a number of different levels of the issue: homeowners, mortgage brokers, Wall Street bankers, and a bunch of people in between. Now i understand. I understand why the banks made the risky loans, and i understand that fraudulent mortgage applications were made, and i understand that adjustable rate mortgages have priced people out of their own homes. This last point is made quickly and simply when the reporters are speaking to a homeowner who is having trouble making payments. His monthly mortgage payment increased $2000 over its starting rate. Imagine trying to come up with an extra $2000 a month.

Listen:

The Giant Pool of Money

Comments

[andy]

It's not easy.

[Judith]

what's not easy?

[andy]

Dealing with credit and finances.

[Judith]

It can be, and you know i'm not entirely unsympathetic. Maybe it's because i have been away from the US since before the beginning of this mortgage debacle, and i didn't really have a grasp on what was really happening (after all, my parents still have their house, my brother has his house, your family have their houses, etc.). One thing is for sure, though, this podcast really opened my eyes.