Financial Innovation

Tomorrow we will be covering the expansion in subprime lending.

On Wednesday we will be covering financial innovation and the creation of such financial products as credit default swaps. To learn about these watch the following three videos from Marketplace's Whiteboard (another great resource connected to public radio).

• "How credit cards became asset-backed bonds," about credit cards, but covers the basic idea of securitization. Also check out the wikipedia entry on Mortgage backed securities (MBS), these pictures are useful. pic #1 pic #2
• "Crisis explainer: Uncorking CDOs," covers the general idea about creating new securities from bonds
• "Untangling credit default swaps" our first exposure to the notorious `credit default swap'

Also, please listen to another episode from "This American Life," here they cover the credit default swap, talking to people involved in the market.

• "Another Frightening Show About the Economy" for class listen to acts two and three that start at 20:00. However, the first twenty minutes are interesting since they capture the mood of the economy in October 2008 when the markets really started to collapse.