Re: How does the credit crisis fit into the macroeconomic picture?

Question: How does the credit crisis fit into the macroeconomic picture?

Thomas Cooley:  Yes, so the question is, I gather your question is how did this happen?  So there were three-- there were several ingredients.  Okay, one ingredient was, there was a bubble in housing prices.  People assumed that housing prices would just continue to go up and up and up and that they could take on unrealistic amounts of debt because the appreciation and the value of their houses would make it possible for them to deal with that amount of debt.  The other thing that happened was that there was a break down in lending practices by mortgage lenders.  So there was not sufficient oversight.  The fee structure for people issuing mortgages was such that their only incentives were to get mortgages out there, to grant them.  And then the other ingredient was sort of the rapid securitization of lending throughout the economy and throughout the world.  So what happened is, these mortgages got bundled and sliced into different pieces that supposedly represented different risk characteristics.  And then there's the vast machinery of the securitization industry, which rated a lot of these things as triple A or very, very safe securities, when they, in fact, they were not.  And so there was a whole un-virtuous circle of things that resulted from this.  That meant when housing prices began to fall, this whole business collapsed and that caused panic essentially in the credit markets because many people found themselves holding these exotic securities that were these bundled mortgages or pieces of them that they could not sell.

Recorded: 3/21/08

NYU's Thomas Cooley explains the credit crisis.

Why Lil Dicky made this star-studded Earth Day music video

"Earth" features about 30 of the biggest names in entertainment.

Culture & Religion
  • Lil Dicky is a rapper and comedian who released his debut album in 2015.
  • His new music video, "Earth," features artists such as Justin Bieber, Ariana Grande, Ed Sheehan, Kevin Hart, and Leonardo DiCaprio.
  • All proceeds of the music video will go to environmental causes, Dicky said.
Keep reading Show less

After death, you’re aware that you’ve died, say scientists

Some evidence attributes a certain neurological phenomenon to a near death experience.

Credit: Petr Kratochvil. PublicDomainPictures.net.
Surprising Science

Time of death is considered when a person has gone into cardiac arrest. This is the cessation of the electrical impulse that drive the heartbeat. As a result, the heart locks up. The moment the heart stops is considered time of death. But does death overtake our mind immediately afterward or does it slowly creep in?

Keep reading Show less
Big Think
Sponsored by Lumina Foundation

Upvote/downvote each of the videos below!

As you vote, keep in mind that we are looking for a winner with the most engaging social venture pitch - an idea you would want to invest in.

Keep reading Show less