Does anyone understand why there has been a financial crisis?
Ever heard of CDOs? Or CDSs?
The famous radio show "This American Life", produced by Chicago Public Radio, broadcasted a show about "Job inside".
The journalists shed light on a hedgefond company that bought risky parts of CDOs for cheap, bet on their default by "insurring" the whole CDO against failure (with a CDS), and by this method earned a pretty penny...
If this doesn't make any sense for you, here is a metaphor from american comedy "The Producers" that shows how it roughly worked:
"Under the right circumstances, a producer could actually make more money with a flop than he can with a hit.
Step 1: We find the worst play ever written.
Step 2: We hire the worst director in town.
Step 3: We raise two million dollars...One for me, one for you. There's a lot of little old ladies out there!
Step 4: We hire the worst actors in New York and open on Broadway and before you can say Step 5, we close on Broadway, take our two million, and go to Rio."
(Quote from: "The Producers", Act I)
Everything all right? Listen to the episode to learn more, non-economists also welcome!