Ambushed by packs of rampaging capital...

[wshaffer]

For anyone who wants a good primer on how a bunch of bad mortgages led to a global credit crunch, I highly recommend This American Life's The Giant Pool of Money. It looks like you can either stream it off the site, or buy a download for 95 cents from iTunes.

It's interesting that securitisation played a role in both this, and in the Enron mess. (Securitisation, crudely put, is the process of putting a bunch of assets into a big pool, and then selling shares in that pool.) In theory, securitisation is great, because it lets you have markets in things that are otherwise hard to sell. And, in theory at least, markets are smart.

However, both Enron and the current mess suggest that a big problem with securitisation is that it makes it really easy to bullshit people (including yourself) about the value of what's in that pool of assets. It would be nice if there were a way to fix this, but I'm not sure if there's any regulation in the world that can get around the human power of self-delusion.

Comments

[rimrunner.livejournal.com]

Especially since (as I understand it) there's some question as to how the valuation of some of these things was arrived at. (I haven't listened to the Giant Pool of Money yet but intend to.)

Benjamin Graham's The Intelligent Investor has a lot of good stuff about evaluating what an investment says about itself. It's a tough slog, though, which is why people like me hire financial planners.

I really need a finance-related icon.

[wshaffer.livejournal.com]

I have a copy of The Intelligent Investor sitting on the shelf here - I ought to have another look at it.