Great Article on Credit Default Swaps

On the way home from work on Friday I listened to a fantastic article on NPR about Credit Default Swaps. Sounds really exciting, I know. :)

Here's the article, give it a listen, it's really eye-opening!

As I listened to the article, it became clear to me, at least in part how the economy got to this point. Years of sub-prime mortgages had a large number of families living on the edge. Those same families probably had little to no savings as well.

Although we already had more foreclosures than usual, when the cost on gas and other goods went up substantially people barely hanging on couldn't any more.

The massive amount of foreclosures starts breaking the chains of Credit Default Swaps that have been building up and it all starts unraveling. Poof!

Hindsight is 20-20 of course. If more people were more cautious fiscally and had savings to tide over rough times, if sub-prime mortgages were much more cautiously granted, and if there was complete visibility of the Credit Default Chains, we'd be better off.

I understand there were many other factors, but it seems that at least these three are obvious and actionable. It will be interesting to see how it all plays out.

And every day I think how much my Mom influenced my financial thinking. Thanks to her we have no worries because the idea of being financially stretched makes me itch. Thanks Mom!