US Financial Crisis

US Financial CrisisEveryone loved my video on the US Economic Crisis, so I created a new one. This time I’ll explain how the US Financial Crisis occurred!

By the end you’ll understand:

  • What a Derivative is
  • What a Collateralized Debt Obligations is
  • How Credit Default Swaps Work
  • The Dangers of Unregulated Markets


And, much more….

If you’d like to see a more in depth presentation on derivatives, check out What are Swaps & Derivatives. The whole presentation is available after the video in PDF format.

US Financial Crisis

If you have any questions or comments leave them below.

Till Next Time

Think Tank

2 Responses to “US Financial Crisis”

  1. Wes says:

    This video moves to fast for me…even though I thought I had somewhat of an understanding of this stuff. I got the most out of this series of videos from the Khan Academy

    • admin says:

      I watched part of the video you mentioned. Sorry I go so fast, but it is just my nature.

      Basically what happened is that

      1. Mortgaged backed securities looked more attractive because they paid a higher income percentage than other AAA investments.
      2. The reason they paid a higher rate is that they really weren’t AAA
      3. Demand increased for what where thought to be the best safe investment
      4. Banks started creating more mortgage CDO’s with even worse real world ratings. They were still sold as AAA though
      5. After a while banks started betting that these CDO’s would stop paying out.
      6. Banks started buying Credit Default Swaps that paid out when the CDO’s collapsed
      7. There was no money to payout on these CDS’s because they weren’t regulated
      8. In 2007 all CDOs had a total value of $180 Billion that fell to $20 Billion
      9. Because in unregulated markets you can take out an unlimited amount of insurance or an unlimited number of CDSs there was over $62.2 Trillion in money owed if all Mortgage CDO’s collapsed
      10. The total possible payout on all CDSs fell to $38 Trillion in 1 year

      It all comes down to banks selling insurance with no principle to payoff when the mortgage CDOs collapsed. The banks where all owed money for these CDO collapses but nobody had the money to payout.

      It sounds insane because it should have never been allowed to happen. I hope that clears it up?

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