We are experiencing a historic economic meltdown. Last September 2008, Lehman Brothers collapsed which basically forced a massive collapse in the stock market, a credit freeze, and the most obvious indicator that our economy was in a free fall. The government has been in massive bailout mode ever since.
If you really want to understand what happened, and you really, really should, the best way to do so, to get a nice overview of what has happened in an even-handed non-partison way, you need to listen to these "This American Life" podcasts (or read the transcript):
This is a very interesting overview about why the regulatory system failed to put a check on the massive risk our financial institutions took on over the past five to six years, and why they were unable to properly regulate.
One of the culprits is the why regulators get chosen and the way they get paid. Unbelievably, regulators are chosen and paid by the banks they regulate. The ratings agencies (yeah those guys who gave all of those now toxic assets AAA ratings) are yes, paid by the people they apply ratings on...
Part of the reason was that the ratings agencies just weren't strong enough to take on the big guys.
Part of the reason is that Congress passed a bill (signed by Clinton in 2000) that made it difficult to regulate the very parts of the financial system that ended up taking down the entire economy.
Finally this page provides links to some very smart and easy to follow radio shows given over the past six months or so that you simply have to listen to.
"The Giant Pool of Money"
This one describes how the quantity of money globally (real money, not fake - the world has gotten richer as we have innovated and have become more globally productive) has doubled the past 6 years. And how a big chunk of that came into the US markets. Couple that with the fact that Greenspan kept interest rates too low for too long just put enormous amounts of investment dollars into real estate, putting horrible pressures to find new buyers of that real estate, very directly causing the massive bubble we have now seen. Which ironically has caused a big drop in our productivity and global wealth. Yep, a big chunk of that cash has disappeared into thin air.
"Another Frightening Show About the Economy"
This is a great overview of what happened right after Lehman Brothers collapsed and AIG nearly collapsed. Why it freaked Bernanke and Paulson out so much. Because banks stopped lending to each other. Money market funds (which are just a shade riskier than savings acconts) "broke the buck" and were at risk of collapse. Lending came to a standstill. Even companies like GE and McDonalds could not borrow money. It was a historic time in our economic history. This show also explains credit default swaps and why they they were so bad and toxic and why the role they played in taking out the economy.
This one has a lot of Simon Johnson in it. It describes the dire situation of the banking situation. How the housing collapse has made many of them insolvent. Quite literally, many banks have already failed, many more would have already if not for the massive amounts of money our government has given them.
"Scenes from a Recession"
This is a really poignant show that describes anecdotally some pretty crazy housing situations some people have gotten themselves into. Condos built complete with granite countertops but literally without a foundation...
Finally, this podcast, "No Map" has one segment in it about how banks are literally not behaving in their self interest.
It would make a lot of sense if they worked with individuals to restructure their loans, but they are not because they can't. They simply do not have the facilities to evaluate the massive amounts of people who could really use this sort of restructuring (maybe cut the loan amount some, drop the interest rates, etc.). As a result, massive amounts of people are walking away from their homes. Banks are forced to hold them and eventually sell them, losing far more money than they could have if they could have worked out a deal to keep the original owners in their homes.
Its a massive tragedy.
I am a regular listener of "This American Life", so this information trickled my way over six or so months. It might be too much to take all at once. So I do recommend spacing this out...
But I feel its vital that you listen to it. There's been a lot of partisan finger pointing in the public space. What I believe is that the blame is wide. Basically, we all had some amount of blame. Its time we worked together to get to a solution that will work.
But to come to a solution, you have to understand the problem. And you, my reader, have got to be part of the solution. So please, get informed.