If you still don’t know how the current financial crisis happened, there’s an excellent explanation making email rounds in a few Latin countries. Unfortunately, it seems it’s available only in Spanish. It’s such a good piece, though, that I’m offering a basic English translation below. (Edit (11/19/2008): The translation is of the version I received. If someone knows of an English version that probably does a better technical translation than mine, please feel free to let me know.)
It doesn’t seem to have an obvious author, though the Word Doc I received lists an “ojimenezr” at the “Caja Costarricense de Seguros Social – C.C.S.S.” under “Properties”. If that’s indeed the author, I hope s/he’s ok with me using it on my blog. A commenter (thank you Alvaro!) provided me with the author and a link to the original piece. The author is Mr. Leopoldo Abadia, a 75-year old ex-professor at IESE. According to an article about “La Crisis Ninja” in El Mundo, he wrote the piece one afternoon in January and the thing went viral (at least in Spanish-speaking countries). His blog called La Crisis Ninja contains a link to the original piece, which he regularly updates. As such, please note that Mr. Abadia has updated his piece significantly since then (last edit looks like it was done on 11/6/2008), so my translation is of an older version. However, I believe it still does an excellent job of explaining the basics leading up to the financial crisis and in that sense is not out-of-date. Despite having heard of CDOs and followed articles in the Economist, I had no real idea how everything was connected together until I read this document.
Here it is: