Awhile back, Gordon posted about speaking with journalists on the phone, and even sponsored a poll seeking to get professor-reader input on chatting with the media. I for one almost always talk to reporters who call me. Especially local reporters from the C-U or Chicagoland area. We're a state school. I kind of think that's my job. Anyway, a local news radio person called yesterday to talk about "what's been going on with the banks," and I'm afraid our conversation just annoyed him. Here are at least three reasons he'll never call me back:
1. He wanted me to explain the entire credit crisis in 2 sentences or less. I can't do it. I pride myself on being able to explain fairly complex areas of law and finance briefly and succinctly, but the interconnectedness of the mortgagor, mortgage broker, holder, purchaser, investor, insurer, etc. takes more than two sentences (unless the sentences are run-on and very ungrammatical). There is no quick and easy soundbite answer. I can't explain the theory of relativity in 10 seconds either. I'm not going to misrepresent the actual situation by saying something pithy but not apt like "Wall Street gobbled up Main Street mortgages like they were candy and now has a bad case of Montezuma's Revenge."
2. He asked me who the bad guys were in this scenario, and I wouldn't give him one. I told him that we may found out that this is no one's fault and that there are no bad guys. A chain of people misassessing risk multiplied into a very big problem. Although it's hard to sell $700 billion to the taxpayers without someone going to jail, I could easily believe that there are no bad guys.
3. He asked me if the situation was going to get worse, and I said yes and no. I said that we might return to an era where it is hard to get a mortgage. People just won't be able to pick up the phone or get on the internet and get a $300k mortgage without a credit history or documentation of earnings. I made the mistake of saying, "And that's probably not a bad thing." That's when we got disconnected.
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1. Posted by Elizabeth Brown on October 9, 2008 @ 13:30 | Permalink
It doesn't sound like you were dealing with a very ethical journalist. The Preamble to the Code of Ethics for the Society of Professional Journalists states: "Members of the Society of Professional Journalists believe that public enlightenment is the forerunner of justice and the foundation of democracy. The duty of the journalist is to further those ends by seeking truth and providing a fair and comprehensive account of events and issues."
It doesn't sound like the journalist with whom you were dealing was interested in presenting a "fair and comprehensive" report of what was occuring in the financial markets.
2. Posted by fedgovernor on October 9, 2008 @ 15:08 | Permalink
Credit crisis in two sentences:
1) The government is forcing the owners of banks to lend to bad credit risks and is taking the bank owners' equity.
2) So, people who own banks, also known as investors, have said, politely, "We'd rather not lend money to anyone anymore."
Bad guys in this scenario: Politicians.
Will the situation get worse: Simple! Yes!
What's so hard about this?
3. Posted by fedgovernor on October 9, 2008 @ 15:15 | Permalink
I mean, you guys around here are college professors and you're supposed to be able to explain this to us.
So, please explain to me why our government would force banks to lend money to people irrespective of whether they are a legal US citizen, for example.
That's a simple question: Should it be legal for a bank to loan my money to an illegal alien?
If the answer is "Yes", then we got into this mess because we're too stupid to own banks.
If the answer is No ... then why aren't banks required to verify legal residency?
4. Posted by Jake on October 9, 2008 @ 20:19 | Permalink
The "Wall Street gobbled up Main Street mortgages like they were candy and now has a bad case of Montezuma's Revenge" is a decent approximation of the truth, but for the fact that illiquidity in the markets more closely resembles constipation than the other malady to which reference is made.
5. Posted by chernevik on October 10, 2008 @ 6:28 | Permalink
1. Institutions borrowed short to buy long, planning to repay the borrowing with loans collateralized by those long asssets. Lenders now see that the borrowers overpaid for the long assets and won't lend more against them, so the borrowers can't refinance the short term borrowing. Since lenders are essentially dependent on their long-investing borrowers to get their money back, the lenders have essentially become long investors themselves -- so they can't roll over their debt either.
2. The "bad guys" are all those who lent without considering the viability of the asset purchases they were funding.
3. Anyone who really knows what will short-term is making money trading.
6. Posted by Taxrascal on October 11, 2008 @ 18:49 | Permalink
Since everyone else is taking a stab at it: "Lenders made bad loans to help people pay for overpriced real estate, and then sold those loans to outside investors buying them based on historical data. When the loans started to default, people realized that the deterioration in credit quality meant that most financial assets were overpriced, and pretty much everyone sold more or less everything."
The really sad thing is that this journalist probably called up a dozen people with the same questions. So what gets into the paper is the opinion of the one person willing to simplify things so dangerously. That can't be healthy.
7. Posted by Cliff on October 12, 2008 @ 0:42 | Permalink
"I made the mistake of saying, 'And that's probably not a bad thing.'"
No mistake there...
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