When someone asks if I can explain how the entire American economy fell into the dumper, Iâ€™ve typically tried to explain the phenomenon of collateralized debt obligations, or maybe recommended reading Michael Lewisâ€™s The Big Short . (After you read it I guarantee that for at least 10 minutes you will understand exactly what a synthetic collateralized debt obligation is.)
No more. Now Iâ€™ll refer people to Paddy Hirsch and this excerpt from his book, Man vs. Markets . Itâ€™s a clear-language explanation of how the deeper in the banks got making potentially bad loans, the more money they made, and the more they had to make more potentially bad loans. Depressing but great reading.