Thursday, May 21st, 2009
$70 trillion dollars. That’s all the money in the world, or to get technical, the subset of global
savings known as fixed-income securities. And it almost doubled from $36 trillion in just six years. How did this happen?
The Federal Reserve presided over the creation of what we have learned (the hard way) is a monster of unregulated investment vehicles run amok, resulting in the global credit crisis.
In the words of National Public Radio’s international business reporter Adam Davidson, “What he (former Federal Reserve Chairman Alan Greenspan) is saying is he’s going to keep the Fed Funds rate at the absurdly low level of one percent. It tells every investor in the world: you are not going to make any money at all on U.S. treasury bonds for a very long time. Go somewhere else. We can’t help you. And so the global pool of money looked around for some low-risk, high-return investment. And among the many things they put their money into, there was one thing they fell in love with.”
Investment companies fell in love with securitizing mortgages, bundling them into enormous pools - in some cases, pools of as many as 16 million loans — and selling them in shares to investors. To make the pool of mortgages even larger, they created vehicles like adjustable-rate mortgages (ARMs), subprime mortgages and no-income, no-asset loans that allowed people to buy homes or take out home equity loans that they simply could not afford. Last
September, this house of cards came crashing down, setting off the global credit crisis and making an ongoing recession the worst in a generation.
Click here to listen to the full “The Giant Pool of Money” podcast from “This American Life” to learn exactly what happened and why. I know of no better description of how the recession happened.
Tags: adjustable-rate mortgages, Alan Greenspan, CDOs, Ceyla Pazarbasioglu, CMBS, credit default swap, Fed Funds rate, Federal Reserve, Federal Reserve Chairman, fixed-income securities, foreclosures, global credit crisis, global financial system, global pool of money, global savings, home equity loans, homes, International Monetary Fund, Ira Glass, loans, National Public Radio, Neighborhood Assistance Corporation of America, no-income no-asset loans, NPR, recession, securitizing mortgages, subprime mortgages, This American Life, US treasury bonds, WBEZ Chicago
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Wednesday, April 23rd, 2008
As an avid follower of presidential politics since the age of six, this year’s protracted primary process has been interesting. The talking heads’ endless dissection of every policy statement; speculation as to which of the all-powerful super-delegates will back whom; the endless round of debates; the questions of who made the best impression. One of the more interesting stories behind the story was National Public Radio’s (NPR) look at how the candidates have branded themselves. Reporter Scott Horsley portrayed the Barack Obama brand as an accidental (McDonald’s was mentioned) franchise that harnessed activists’ energy and got them “fired up and ready to go”. The catalyst was a 2006 chance meeting between Obama and a Texas community activist named David Kobeirowski, who was planning to start a book club to discuss “The Audacity of Hope”. Obama approved of the idea, saying, “David, that is fantastic. This is the kind of grassroots spirit I want to have all over the country.” In effect, NPR reported, Kobierowski had become a Barack Obama franchisee – not a paid staffer, but an independent booster, acting with Obama’s blessing.According to Horsley, “Harnessing that kind of energy is one way for a start-up enterprise to quickly establish a national presence – whether they are selling hamburgers or Obama’s health care policy.” The signature “O” logo has become a recognizable symbol – similar to interstate signs for franchise hotels and fast-food chains. Next up was John McCain’s roller-coaster campaign, which has survived more ups and downs than the stock market. According to NPR correspondent David Kestenbaum, McCain “started out as big and powerful before nearly going out of business. Now he finds himself in the forefront again. Business professors compare his campaign to products such as Apple computers or the Mars Bar, which have had similar boom-and-bust business patterns.” The McCain candidacy – like the Mac computer – is perceived as a maverick. Says David Brady, a senior fellow at the Hoover Institution and a professor of political science at Stanford University, the Mac computer “is never mainstream, in the sense that it doesn’t sell as many computers as Dell or HP, but they’ve got a nice loyal following.” The same can be said of John McCain. In NPR’s final report on presidential candidate branding, David Kestenbaum noted that the Hillary Rodham Clinton campaign comes across as a well-established national brand - but with a difference. Clinton had a definite advantage coming into the race, having spent eight years in the White House as First Lady, as well as eight years in the Senate. Like on “Cheers”, everybody knew her name. Susan Jung Grant, assistant professor of marketing at the University of Colorado at Boulder, posits that if Bill Clinton is an established brand such as Lay’s Potato Chips, then “Senator Clinton could be sour cream and chive potato chips. It’s the idea of a flanking brand that’s a little bit different from the main category.” While an established brand can be perceived as hackneyed because of overexposure, an innovative variation can energize the candidate’s image and increase the appeal to consumers. So which brand are the American people buying? Stay tuned.
Tags: Barack Obama, Dell, grass roots marketing, Hilary Clinton, Hoover Institution, HP, John McCain, Mac computers, McDonald's, NPR, presidential candidate branding, presidential politics 2008
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