it’s this obscure little radio show


Megan doesn’t care for Matt Taibbi’s takedown of Byron York, in which Taibbi makes it sound like York has no idea what he’s talking about with respect to the financial crisis.

Naturally, I have no idea about any of this stuff other than feeling vaguely hostile toward Byron York. Still, I was a little uncomfortable when I first read that exchange: Taibbi’s scolding about credit default swaps came at a time when a lot of other people on the internet were also suddenly speaking knowledgeably about the financial meltdown and the rarified financial instruments to blame for it. That wave of spontaneous expertise seemed to occur suspiciously shortly after the air date of an episode of This American Life that discussed the crisis and CDSes in particular.

Which is not to say that TAL is wrong; I listened to that episode, too, and it seemed excellent! But it’s been both amusing and off-putting to see so many people brazenly parroting the same single News Source White People Like. I have no idea if this criticism actually applies to Taibbi, but the conversation between him and York certainly made it sound like it could.

UPDATE: Since Megan kindly linked back to me, I should probably add that while I can’t be sure that my speculation about Taibbi’s argument is correct, it’s very clear that York’s pathetic line about Freddie and Fannie is a regurgitated conservative talking point — a particularly lame, objectionable and well-debunked one at that. It seems likely that both sides of that conversation were blindly reciting other people’s arguments.

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Tom Lee


  • A friend of mine pestered me for days about listening to that “This American Life” episode, and after I finally listened to it, I was shocked by how unbelievably inaccurate their portrayal of CDSs was. (I work in the financial industry.)
    TAL made some statements that were simply factually false. For example, they said that CDSs are outside the capital requirements because they’re “unregulated.” Untrue. The biggest reason CDSs are so popular is that they DIRECTLY affect capital requirements — for example, a Ford bond would normally require a certain amount of capital to be set aside, but when you hedge it by buying a CDS on Ford, you free that capital up. TAL also did a whole segment on how “netting” is somehow an unmitigated evil. They clearly don’t know what “netting” actually is, and seem to have confused it with “hedging.” That’s not a trivial error, either.
    My biggest problem with the TAL episode was how they suggested that anyone who buys CDS protection on a particular bond without actually owning the bond is just a reckless speculator. As the past 5 weeks have convincingly demonstrated, you don’t need to actually own a company’s debt to be exposed to the credit risk. Lots of companies that owned no Lehman debt have suffered huge losses as a result of Lehman’s bankruptcy. If those companies had bought CDS protection on Lehman, they would have been hedging credit risk, not engaging in reckless speculation.
    And that’s why it’s a bad idea to have journalists try to explain something they just learned about for the first time a few days ago.

By Tom Lee