Voodoo Economics: the credit crunch explained

Like many people I suspect, I’ve been wondering about the credit crunch. About what it is – other than a little lego block of language – about how real it is, how real all these stratospheric amounts of money being talked about. Wondering, I think, about what, in context of the CC, ‘money’ is. Digits on a screen, years of work, part of a company…

I’ve read quite a few articles on the crisis, so I thought I’d put down a few of the best links. The title of this post comes from a comment on a Metafilter post, which has consistently produced some of the best discussion of the events I think. People trying to get to grips with it. Told you so’s, cynics, wits, fascinated students.

This particular post links to a great article on Wired about the role of maths geeks in the economic implosion, but before you get there I’d recommend some other links:

1. The Crisis of Credit Visualised is a good 10 minute intro to the basics.

It’s quite US focussed (and centred very much on housing) but is an excellent indication of how seemingly disaparate parts of the economy become interlinked.

2. To get a better sense of the delicate complexity involved in modern economic instruments, set aside an hour of your time for a brilliant episode of This American Life, aptly titled ‘Another Frightening Show About The Economy.’ You can stream it from their site for free.

3. Once you’ve listened to that, you begin to get some idea of the role of instruments such as Credit Default Swaps in this mess. And that means we’re now on to the role of computers, quants, algorithms and far out maths. This NY Times article frames the CC as quite possibly the first time that humanity on a large scale has been out-thought by computers.

4. Wired’s aforementioned piece is less scifi, and frankly, just plain excellent. It makes it clear that while algorithms played a role, two age old factors really drove it: the desire to trust in systems, and, of course, greed.

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