Video: Credit Crisis As Antarctic Expedition

Antarctic explorers trudge across the icy wastelands, heavily laden with rucksacks, bound together with rope. This is a good metaphor for understanding the credit crisis, and Paddy Hirsch from American Public Media is going to lay it down on you. Oh no! There’s a crevasses. Yay! Here comes Henry Paulson to come save the banks in his helicopter. The money meltdown is definitely much more digestible, and fun, in stick-figure and whiteboard form. Full video inside.

The credit crisis as Antarctic expedition from Marketplace on Vimeo.

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Untangling credit default swaps [Marketplace]


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  1. mike says:

    I’m convinced that British people could say that the sky is made of hollindase sauce and we’d all believe it.

    • chelotoyou says:

      @mike: Yeah, completely. I will believe anything this man says because of that accent. And overall sweater-wearing hotness. Crisis what?

  2. LatinoGeek says:

    Bravo! Very nice metaphor and pretty accurately represents what is currently happening.

    • sirellyn says:

      @LatinoGeek: Some of it is. The analogy that Paulson would take the banks back to a hospital to “heal” by buying them out is crazy though.

      The second assumption that the assets aren’t “toxic” is also ridiculous. If they weren’t they’d be able to find people to buy them. Think about it for a minute. Even the dumbest investors DON’T want to buy these assets. There are suckers everywhere and even THEY won’t buy them. So the US government pushes forth the tax payer as the biggest sucker of them all. The banks can already sell to the Japanese, Brazilians etc. But no one else wants them!

      • Trai_Dep says:

        @sirellyn: How toxic they are depends on the price. Even a suite of mortgages that have 10% of them making payments aren’t toxic if purchased at ten cents on the dollar (or less, for a win).
        The problem is finding the right price, of course. That’s one of the key arguments against us buying them now, before the dust settled. Especially if used as a vehicle to recapitalize the firms. It’s better to be more direct, extracting acceptable terms up front, than rolling the dice, is the logic, I think.

  3. Trai_Dep says:

    Brooklyn guys would say the credit crisis is like pizza. Made in California. On a Fajitas platter. Topped with avocados.

  4. whinypurist says:

    Hmmmm, this morning I woke with my own metaphor – for the whole financial slowdown, not just the credit market meltdown: A traffic jam. And some of us at the front of the jam started slowing years ago, and have been nearly stopped for about a year (certain small businesses, and their employees), creeping along, worried about how much gas we have left in the tank, eyeing the crashes, spin-outs, and the cars pulled off to the side while at the same time adjusting for the worsening road conditions (gas and food prices). These banks/bankers are just a convoy of huge, fast moving vehicles with unmaintained brakes coming up at the back of the jam, and we’re not sure how many are going to be able to slow down (with help) or if they’re going to take out a bunch of us and cause a worse jam for everyone behind them, etc. Point of my metaphor – We’re all on this road together, because most days the road gets us where we want to go. But driving well and maintaining our own vehicles only gets us so far; we also need to accept and enforce rules to keep the road running smoothly, and have a better way to deal with crashes as they come up (starting at a state government level maybe?).

  5. Trai_Dep says:

    For those that can’t get enough of sexy English-accented blokes explaining financial situations, <a href=” http:=”””” 1915392?pg=”embed&sec=1915392"”>Untangling credit default swaps in this case…

  6. Trai_Dep says:


  7. Trai_Dep says:

    It seems that the crushing, destabilizing thing about the CDOs wasn’t that two sophisticated parties, directly involved (on say, a GM bond) entered into a risk-mitigation arrangement, particularly if they were collateralized in a conservative fashion.
    It’s the over-the-counter nature of them, their opaqueness and (most damningly) the ability of parties not directly involved (not either holding the original bond or insuring the original bond) that hypercharged this sector and turned it into rank speculation.
    That is, the original concept was sound. If laws were only written so that only direct parties could write contracts affecting them and that the terms were public. Originally, they might have made sense.
    Of course, this would limit the market (read: potential fees to Wall Street firms), so they voraciously fought regulation to limit and make transparent these transactions, which sunk the Titanic.
    That, it seems to me, is the true crime of this ruinous saga.

    • whinypurist says:

      @Trai_Dep: Yeah, his metaphor neglected to mention that they’ve lobbied successfully to not use safety gear, and some are pretty drunk (past payrolls, perks and bonuses) besides.

      • Trai_Dep says:

        @whinypurist: I was sort of hoping he’d have a section where the mountaineers started eating each other’s cold flesh in a futile attempt to forestall the inevitable…

  8. floraposte says:

    I pedantically note that he’s really talking about mountain climbers, not Antarctic explorers–the latter don’t really rope themselves together unless they’re pulling something together, and there’s not a whole lot of Japanese Antarctic exploration, but there’s a fair bit of Japanese mountaineering.

    But I still liked it, as I’m still trying to grasp a lot of what’s going on. Trai, are you saying you think that even these numerous high-default loans could have had legitimate places on the investment/securities tree if the process had been more organized and transparent? I can certainly see that it would have limited the secondary, tertiary, etc. risk, but I think the main effects would have been to reduce reliance on these loans in the first place because such a process would have made them less lucrative. Which would be fine by me, I just want to see if I’m understanding what you’re saying.

    • Trai_Dep says:

      @floraposte: I’m not sure, I’m sort of feeling my way in this. But if these were limited to direct parties, if they had to list them publicly, only conservative levels of leverage could be used AND if both sides had to hold reserves equivalent to whatever that month’s best guess of what the value of default would be, then they might have been okay.
      Keep in mind there was a legitimate need for these: say CALPERS wants to hedge a AAA GM bond, so it’s even safer. These vehicles served that purpose. Then, unregulated, the industry went nuts.
      With these restrictions, they’d only be used for the most conservative hedges. They wouldn’t be prone to speculation, since third parties couldn’t make drunken side bets or include them in tranched, opaque vehicles, thus limiting the fallout if an underlying asset crashed and burned. And investment houses and insurers would be loath to underwrite too many of these, since it’d tie their capital up, especially the more they wrote.
      So let them happen, sensibly regulated. Rather than the Anything Goes approach that the Free Market Fundamentalists let happen.
      So, to my unschooled eye, it seems like it’d be okay. Anyone with a background in this stuff, feel free to poke holes in my naiveté. :D

  9. TakingItSeriously is a Technopile says:

    I love these.

  10. ReverendBrown says:

    I do enjoy the explanation of what is otherwise, to me, a dull, dry, depressing subject. I hope he continues. Bravo.

  11. Trai_Dep says:

    Oh, Alex Bloomberg et al. have a mini-blog on NPR called Planet Money, that covers this stuff on a daily basis, presumably for the duration.

  12. S-the-K says:

    What’s going to happen to Henry’s wife, who is upset with him for picking up these worthless toxic CDOs in his expensive rescue helicopter, if everyone at the base camp suddenly loses their appetite for toxic CDOs? Sure, Henry paid less for them than the expeditioneers paid for them, but he paid more than they are worth on the open market, which is why nobody wanted to buy them from the expeditioneers in the first place.

    Clearly, if/when Henry’s scheme fails, or until other expeditioneers get their appetite back, Henry’s wife (who bankrolled the rescue mission because Henry stole her checkbook) will become destitute.

    Thanks, Henry!