This morning I was listening to This American Life which aired one of the best layman’s analysis’ I have heard yet of the current financial crisis.  Back in May I mentioned their Global Pools of Money and Sub-Prime Crisis show.  Today’s show, Another Frightening Show About the Economy, was a continuation of that program but focusing on the current Financial Crisis and the Bailout Package.

Every person in America needs to list to today’s show!  (the link seems to be getting a lot of traffic, so be patient…it’s worth it.)

The net-net that I took away from the show was that we are where we are today because of too much borrowing and greed of exotic financial creations that didn’t create any real value but were just gambling.  This show talks about the credit market for businesses and how it’s freezing up over the past two weeks has raised awareness of this crisis.  Those credit markets are linked to the large financial institutions that we all know by heart now.  And how these financial institutions (and others that we may not have heard of, yet) were writing Credit Default Swaps (CDOs) to show greater profit on paper without any knowledge of what other CDOs where out there.  Essentially creating a financial house of cards all based on bets.

Now this financial bail out package that the government has been debating over is the government spending our money to fix a problem that they helped create.  The issue is that the bailout package that we have all been hearing about is the US Tax Payer giving these financial institutions money to buy their worthless debt that has created the freezing of the credit markets (we are left holding the bill with the greatest risk of never seeing any of our (borrowed) money again).  This is the same package that most economists in the country publicly got together to say was a bad idea. What I found surprising from the show is that apparently there was some subtle language added at the last minute by someone that gives the option of not just buying the debt but of making the US Taxpayer stock holders in the companies that we take the the debt over from with front priority of getting our money back.  Just because this option exists, doesn’t mean that it will be exercised; but I am much more hopeful that someone somewhere is pulling the right strings behind the scenes and that Tax Payer might not get as screwed in all this when the look back at this 1, 3, or 10 years from now.  (and the last 7 years will be talked about for the next 70…)

Personally, I believe that we are in for more rocky times ahead and that things will get worse before they better.  That being said, now more than ever each person needs to education themselves on the financial markets that shape their everyday lives (even more so considering the elections coming up).  On that token, I regularly browse the Planet Money blog on NPR and Investor Insights blog.  I also read John Mauldin’s Outside The Box financial newsletter (goes into some hairy details, but also good for just picking up the hot topics).

Educate yourself on how this stuff works so that you can call shenanigans on the rhetoric that is getting tossed out there on both sides.