The Giant Pool of Money

Last updated

"The Giant Pool of Money" is an episode of the radio show This American Life which originally aired on May 9, 2008. The episode described to a general audience the causes and factors which led to the subprime mortgage crisis. Specifically, the show aimed to show the chain of people who were "participants up and down the subprime food chain". [1]

Contents

The show featured Adam Davidson, a business correspondent for National Public Radio and Alex Blumberg, a producer for the show, interviewing and reporting on the financial crisis. Blumberg described it as trying to answer the question "why are they lending money to people who can't afford to pay it back?"

Content of the show

The episode's name "The Giant Pool of Money" is derived from the description used in the show of fixed-income securities; it was identified in passing with the global saving glut. Davidson described it as follows:

Most people don't think about it but there's this huge pool of money out there, which is basically all the money the world is saving now. Insurance companies saving for a catastrophe, pension funds saving money for retirement, the central bank of England saving for whatever central banks save for. All the world's savings.

The show begins at a black tie gala, where an award is being presented for CDO of the year. The show does not lay blame on the financiers directly, going so far as to say "Let me just say, they’re aware that there’s a certain irony, giving awards to the instrument that almost destroyed the world’s economy. They did consider canceling this year but it’s been a really tough year, it’s been really gloomy for them." [2] They then proceed to the opposite end of the spectrum, with a borrower whose mortgage is in default.

After some background on what caused a shift in capital to mortgages, which they hypothesize to be Alan Greenspan's keeping fed funds rates low during the early 2000s, the show moves to Mike Francis, a Wall Street financier who worked at Morgan Stanley. From there, the show describes "another Mike", Mike Garner, who worked down the chain, at Silver State Mortgage. He described the pressures and motivations faced by mortgage salesmen. After describing that area of the chain, they moved on to a CDO investment management firm run by Jim Finkel of Dynamic Credit, LLC. Davidson through an interview with Finkel describes the nature and creation of CDOs.

After describing these market players, the show goes on to discuss the nature of the speculative bubble, highlighting real estate TV shows that sprung up during the bubble, such as A&E's Flip This House . The show then revisits some of the interviewees, describing the bursting of the bubble, both in terms of their business and personal fortunes. Blumberg and Davidson end with a prognosis of the financial system. Blumberg states "there's more talk that the next few years will feel like the 1970s. There are lots of technical differences between this crisis and Jimmy Carter's malaise. But for the average person, it could feel the same."

Reception and legacy

The show was well received by listeners, stimulating ten times more listener feedback than average, all of it positive according to reporter Adam Davidson. [3] In February 2009, Adam Davidson and Alex Blumberg were awarded the Polk Award for the episode. [4] Chicago Public Radio's This American Life and National Public Radio, News Division won a Peabody Award for the episode, which the awards body deemed "impressive for the arresting clarity of its explanation of the financial crisis we're in, and even more so for its having aired so early - May 2008." [5]

In 2010, "The Giant Pool of Money" was chosen by New York University's Arthur L. Carter Journalism Institute as one of the top ten works of journalism from the 2000s decade, ranking it number 4. [6] [7] In 2014, Slate ranked the episode on its list of "The 25 Best Podcast Episodes Ever" at number 2. [8]

In 2021, the episode was deemed "culturally, historically, or aesthetically significant" by the Library of Congress and selected for preservation in the United States National Recording Registry, making it the first podcast to be added to the registry. [9]

Continuing coverage

The same team of producers have created three follow-up episodes to "The Giant Pool of Money" as "Your Guide to the Meltdown". On October 3, 2008, This American Life broadcast "Another Frightening Show About the Economy", [10] examining what regulators could have done to prevent the economic crisis. "Bad Bank" [11] aired February 27, 2009, explaining insolvent banks and toxic assets. Finally, on June 5, 2009, "The Watchmen" [12] aired and examined the role of Congress and regulators since the creation of the American financial system in the 1930s.

A fifth episode entitled "Return to the Giant Pool of Money" [13] was aired on September 25, 2009. Davidson and Blumberg have also gone on to work with other NPR reporters on a regular podcast covering economics, global finance, and other business topics using similar storytelling techniques: NPR's Planet Money .

Related Research Articles

<i>This American Life</i> Short stories radio program and podcast

This American Life (TAL) is an American weekly hour-long radio program produced in collaboration with Chicago Public Media and hosted by Ira Glass. It is broadcast on numerous public radio stations in the United States and internationally, and is also available as a free weekly podcast. Primarily a journalistic non-fiction program, it has also featured essays, memoirs, field recordings, short fiction, and found footage. The first episode aired on November 17, 1995, under the show's original title, Your Radio Playhouse. The series was distributed by Public Radio International until June 2014, when the program became self-distributed with Public Radio Exchange delivering new episodes to public radio stations.

A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS). Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. Distinctively, CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets.

<span class="mw-page-title-main">Merrill Lynch & Co.</span> Defunct American investment bank

Merrill Lynch & Co., formally Merrill Lynch, Pierce, Fenner & Smith Incorporated, was a publicly-traded American investment bank that existed independently from 1914 until January 2009 before being acquired by Bank of America and rolled into BofA Securities.

No income, no asset (NINA) is a term used in the United States mortgage industry to describe one of many documentation types which lenders may allow when underwriting a mortgage. A loan issued under such circumstances may be referred to as a NINA loan or NINJA loan.

Nancy Updike is an American public radio producer and writer. Her work has been featured on radio programs including This American Life and All Things Considered, and has been published in The New York Times Magazine, LA Weekly, The Boston Globe, and Salon.com. She graduated from Amherst College in 1991.

<span class="mw-page-title-main">The Center for Investigative Reporting</span> Non-profit organisation in the USA

The Center for Investigative Reporting (CIR) is a nonprofit news organization based in Emeryville, California. It was founded in 1977 as the nation’s first nonprofit investigative journalism organization, and has since grown into a multi-platform newsroom, with investigations published on the Reveal website, public radio show and podcast, video pieces and documentaries and social media platforms, reaching over a million people weekly. The public radio show and podcast, “Reveal,” co-produced with PRX, is CIR’s flagship distribution platform, airing on 588 stations nationwide. The newsroom focuses on reporting that reveals inequities, abuse, and corruption, and holds those responsible accountable.

<span class="mw-page-title-main">Subprime mortgage crisis</span> 2007 mortgage crisis in the United States

The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. The crisis led to a severe economic recession, with millions of people losing their jobs and many businesses going bankrupt. The U.S. government intervened with a series of measures to stabilize the financial system, including the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act (ARRA).

The subprime mortgage crisis impact timeline lists dates relevant to the creation of a United States housing bubble and the 2005 housing bubble burst and the subprime mortgage crisis which developed during 2007 and 2008. It includes United States enactment of government laws and regulations, as well as public and private actions which affected the housing industry and related banking and investment activity. It also notes details of important incidents in the United States, such as bankruptcies and takeovers, and information and statistics about relevant trends. For more information on reverberations of this crisis throughout the global financial system see Financial crisis of 2007–2008.

A synthetic CDO is a variation of a CDO that generally uses credit default swaps and other derivatives to obtain its investment goals. As such, it is a complex derivative financial security sometimes described as a bet on the performance of other mortgage products, rather than a real mortgage security. The value and payment stream of a synthetic CDO is derived not from cash assets, like mortgages or credit card payments – as in the case of a regular or "cash" CDO—but from premiums paying for credit default swap "insurance" on the possibility of default of some defined set of "reference" securities—based on cash assets. The insurance-buying "counterparties" may own the "reference" securities and be managing the risk of their default, or may be speculators who've calculated that the securities will default.

Credit rating agencies (CRAs)—firms which rate debt instruments/securities according to the debtor's ability to pay lenders back—played a significant role at various stages in the American subprime mortgage crisis of 2007–2008 that led to the great recession of 2008–2009. The new, complex securities of "structured finance" used to finance subprime mortgages could not have been sold without ratings by the "Big Three" rating agencies—Moody's Investors Service, Standard & Poor's, and Fitch Ratings. A large section of the debt securities market—many money markets and pension funds—were restricted in their bylaws to holding only the safest securities—i.e. securities the rating agencies designated "triple-A". The pools of debt the agencies gave their highest ratings to included over three trillion dollars of loans to homebuyers with bad credit and undocumented incomes through 2007. Hundreds of billions of dollars' worth of these triple-A securities were downgraded to "junk" status by 2010, and the writedowns and losses came to over half a trillion dollars. This led "to the collapse or disappearance" in 2008–09 of three major investment banks, and the federal governments buying of $700 billion of bad debt from distressed financial institutions.

<i>Planet Money</i> Economics podcast

Planet Money is an American podcast and blog produced by NPR. Using "creative and entertaining" dialogue and narrative, Planet Money claims to be "The Economy Explained."

<span class="mw-page-title-main">Adam Davidson (journalist)</span> American journalist

Adam Davidson is an American journalist. He was a co-founder of NPR's Planet Money program. Previously he has covered globalization issues, the Asian tsunami, and the war in Iraq, for which he won the Daniel Schorr Journalism Prize. He and Adam McKay were former co-hosts of Surprisingly Awesome from Gimlet Media. Davidson worked as an economics columnist for The New York Times Magazine and in 2016 took a position at The New Yorker.

<span class="mw-page-title-main">Felix Salmon</span> British financial journalist

Felix Salmon is a British/American financial journalist, formerly of Portfolio Magazine and Euromoney and a former finance blogger for Reuters, where he analyzed economic and occasionally social issues in addition to financial commentary. In April 2014, Salmon left Reuters for a digital role at Fusion. In 2018, he joined Axios as chief financial correspondent.

<i>Inside Job</i> (2010 film) 2010 documentary film by Charles Ferguson

Inside Job is a 2010 American documentary film, directed by Charles Ferguson, about the late-2000s financial crisis. Ferguson, who began researching in 2008, said the film is about "the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption", amongst them conflicts of interest of academic research, which led to improved disclosure standards by the American Economic Association. In five parts, the film explores how changes in the policy environment and banking practices helped create the financial crisis.

<span class="mw-page-title-main">Causes of the Great Recession</span>

Many factors directly and indirectly serve as the causes of the Great Recession that started in 2008 with the US subprime mortgage crisis. The major causes of the initial subprime mortgage crisis and the following recession include lax lending standards contributing to the real-estate bubbles that have since burst; U.S. government housing policies; and limited regulation of non-depository financial institutions. Once the recession began, various responses were attempted with different degrees of success. These included fiscal policies of governments; monetary policies of central banks; measures designed to help indebted consumers refinance their mortgage debt; and inconsistent approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.

<span class="mw-page-title-main">2007–2008 financial crisis</span> Worldwide economic crisis

The 2007–2008 financial crisis, or Global Financial Crisis (GFC), was the most severe worldwide economic crisis since the Great Depression. Predatory lending in the form of subprime mortgages targeting low-income homebuyers, excessive greed and risk-taking by global financial institutions, a continuous buildup of toxic assets within banks, and the bursting of the United States housing bubble culminated in a "perfect storm", which led to the Great Recession.

<span class="mw-page-title-main">Alex Blumberg</span> American radio journalist

Alex Blumberg is an American entrepreneur, radio journalist, former producer for public radio and television, best known for his work with This American Life, Planet Money, and How to Save a Planet. He was the co-founder and CEO of the podcast network Gimlet Media.

Nazanin Rafsanjani is the former head of new show development for Gimlet Media. Previously she was creative director at Gimlet Media and before that, a senior producer for The Rachel Maddow Show.

<i>Reveal</i> (podcast) American investigative reporting radio show and podcast

Reveal is a nationally broadcast public radio show and investigative reporting podcast hosted by Al Letson. The radio program is released on Saturdays on radio stations in the Public Radio Exchange network and the show is also available in podcast form. It is part of a growing trend of investigative reporting being disseminated through audio. Its first weekly season was ranked among the top 50 podcasts by The Atlantic.

References

  1. Carr, David (2008-09-28). "Daring to Say Loans Made No Sense". The New York Times . p. 2. Retrieved 2008-09-30.
  2. "The Giant Pool of Money". This American Life . Episode 355. 2008-05-09. Transcript.
  3. Shepard, Alicia C. (2008-05-28). "The Giant Pool Of Money". NPR Ombudsman. NPR. Retrieved 2021-11-12.
  4. McFadden, Robert D. (February 17, 2009). "For Their Risk-Taking, Journalists Garner Polk Awards". The New York Times. Retrieved May 25, 2010.
  5. "Complete List of 2008 Peabody Award Winners". The Peabody Awards. 2009-04-01. Archived from the original on 2009-04-02. Retrieved 2023-06-28.
  6. Communications, NYU Web. "NYU's Carter Journalism Institute Names Five Newspaper Series, Four Books, and a Radio Program Decade's Top 10 Works of U.S. Journalism". www.nyu.edu. Retrieved 2023-06-08.
  7. "Top Ten Works of Journalism of the Decade, 2000-2009". NYU Journalism. Retrieved 2023-06-08.
  8. Haglund, David; Onion, Rebecca (18 Dec 2014). "The 25 Best Podcast Episodes Ever". Slate. Archived from the original on 17 Dec 2014. Retrieved 8 June 2023.
  9. "National Recording Registry Adds 'Rhythm Nation' Among 25 New Selections". Library of Congress. Retrieved 2021-03-25.
  10. "Another Frightening Show About the Economy - This American Life". This American Life. 2008-10-03. Retrieved 2018-10-12.
  11. "Bad Bank - This American Life". This American Life. 2009-02-27. Retrieved 2018-10-12.
  12. "The Watchmen - This American Life". This American Life. 2009-06-05. Retrieved 2018-10-12.
  13. "Return To The Giant Pool Of Money - This American Life". This American Life. 2009-09-25. Retrieved 2018-10-12.