The story has a lot of complicated financial gobbledygook, but the intuition is pretty simple. Magnetar bought a bunch of risky housing assets, knowing they were risky. But instead of expecting big returns for big risk, Magnetar had a different plan. They took out insurance on these assets in the form of Credit Default Swaps, hoping that the assets fail and Magnetar can collect massive profits from their insurance payoffs. Well, it worked. The company made record profits buying garbage assets, and thus laid the groundwork for a financial collapse.
It sounds like insurance fraud to me, but Alex made a more comical connection. Ever seen The Producers? In that musical, two Broadway producers realize they can make oodles of money by overselling shares on a play they plan to make terrible. NPR takes the analogy a step further by parodying one of The Producers' song in this humorous and informative number:
'Bet Against The American Dream' from Planet Money on Vimeo.
Pretty good stuff, right? Almost as good as this macroeconomics gangster rap I'll be sharing next time. Stay tuned!
No comments:
Post a Comment