blog.mint.com/blog/finance-core/a-visual-guide-to-the-financial-crisis -> blog.mint.com/blog/finance-core/a-visual-guide-to-the-financial-crisis/
reddit Almost overnight, the talking heads went from perpetuating the euphoria of investors to rushing to pronounce the economy dead. Last year, when lenders started dropping like flies as foreclosures rose and margins were called, the problems of Wall Street became more and more apparent, and lending guidelines were tightened to the point that many individuals were stuck in their time-bomb loans, and thus began a vicious cycle. Here is a visual guide to help you understand the events leading up to the bailout. com to see where your money goes, get bill reminders & alerts, track your investment performance, and find extra savings.
November 14th, 2008 at 12:28 am hi, it's a really great way to analyze what went wrong and where. but here we need a solution , anyway it really good and easy to understand the whole thing through this.
November 14th, 2008 at 12:59 am Excellent analysis - makes it easier to understand for sure. I love how the President really only chimes in when it's absolutely too late to really curb it.
November 14th, 2008 at 3:44 am These diagrams are great but you forgot one of the most important parts. The investment firms didn't make subprime mortgages for homeowners, they made them to satisfy the global pool of money looking to invest when Greenspan shut down investment in US paper by lowering the prime. There was another large variable in the first chart which was the larger financial institutions and countries who eventually ended up with the CDOs.
November 14th, 2008 at 7:51 am These diagrams are awesome! One thing though, one of the "bottlenecks" is "Overbuilding of homes" and the rest of the bottom diagram relies on that. That might be true in the US, but property prices are going down sharply here in the UK too but overbuilding did not occur. In fact, it was a major lack of building due to strict planning laws that caused the property price rises in the first place. As recently as three months ago, the British government was banging on about how we need to keep building more homes to satisfy demand. It seems, however, that demand to own a home has now slumped not because people don't want to own one, but because people are scared of the risk involved - so they'll live with their extended family / parents / whatever for longer yet instead.
November 14th, 2008 at 8:07 am I've ripped on this blog for some questionable work... In fact, this is what the average investor needs to see. Almost everyone can understand the problem via this graphic.
November 14th, 2008 at 8:15 am Meanwhile, the strength of the dollar eroded through the "get into trouble" phase of this (loose money supply and a lot of debt tends to do that) and has gotten much stronger since the bailout package was passed. We're talking about 3 year strong highs against the Euro and 5+ year strengths against the GBP. I wonder how bad the economy really is now that the housing bubble has mostly popped and forced the US into a more rational monetary policy.
All of this was created by greed, lack of controls and governmental collusion. We have a nation full of bright and talented individuals who are all just fighting for themselves. The bright future is that we don't have to stay that way.
November 14th, 2008 at 9:25 am Just one minor issue: CDOs don't only contain bad loans. They consist of mortgages bucketed into risk tranches, which are then sold at various prices. The problem is that risk is relative and if the whole economy sours, even those who look relatively likely to payback will probably default. I realize that you probably had to be reductive for explanatory purposes, but still.
November 14th, 2008 at 9:41 am This diagram does not take into account credit default swaps, and their lack of regulation, which was one of the major factors other than housing in this financial crisis.
November 14th, 2008 at 10:00 am People bought the wrong way in the wrong markets. I used "equity" from my house during the last in South Florida to buy 10 other houses in upstate NY. I've lost $0 equity on the investments and could care less about the equity on the house in Florida. Rents pay the carrying costs and provide healthy positive cash flow. Now that things are low, I'm surviving because I put the equity "overflow" in the healthy assets.
November 14th, 2008 at 11:09 am You missed one key step - Federal Reserve "pumping up" the markets with cash injections and lowered interest rates, contributing to the bubble growth.
November 14th, 2008 at 1:28 pm You forgot President Clinton appointing Franklin Raines,lowering the requirements to qualify for mortgage loansand the cooking of the books at freddie mac. Look who recieved the most "campaign contributions" from freddie mac to look the other way while our economy was raped. It's ok though,the very people who profited are going to fix it now.
November 15th, 2008 at 6:42 am Excellent way to communicate a complex concept. Hopefully we won't need to add the boxes that logic says come next! A loop: "Debts default / US government defict rises / Goverment needs to sell more bonds / Interest rates rise" ... A path out of the loop "Investors lose confidence in US bonds" ...
November 15th, 2008 at 9:52 am Excellent graphic easy to understand. Neither the graphic nor commentators picked up on a very important issue. That is the cost and financing of the Iraq war and the effect it had on the then rising price of oil and it's subsequent impact on the overall economy and housing market By borrowing the money to finance the war and pay for the Bush tax cuts to the wealthiest 5 percent of Americans the increased pressure on the dollar drove it downwards vs the Euro and major Asian currencies. Oil markets seeing the falling value of the dollar eroding their real income raised prices to compensate. Oil went from 29 dollars per barrel when Bush came to office to over 140 dollars per barrel before falling back in the current downturn. This put huge pressure on every facet of the economy from corporations to single families to students. In simplistic terms this did three things that contributed to the housing and credit crisis. From fertilizer, storage, transportation, processing and packaging of agricultural products to mining, processing, transportation, fabrication, packaging shipping, warehousing and distribution of the end product. In industries where applicable the industry and accompanying jobs were shipped overseas to lower labor cost countries , China for example. When that wasn't a feasible option producers tried to lower cost by trimming the workforce or not hiring new employees. The net result for the economy overall was a net loss or stagnation of jobs and higher prices for everything that used or relied oil or energy created from oil products. The most visible manifestation was the 4+ dollar a gallon gasoline, however the less visible cost were just as damaging if not more so to the economy. This meant that consumer debt skyrocketed and personal savings plunged during this period. As the economy got deeper into this cycle consumers were finding harder to cover all of their obligations of mortgage payments, credit card debt, and rising transportation, food, utilities and heating bills. For those that lost their good paying factory jobs finding new jobs with similar or even adequate compensation became more and more an exercise in frustration. These two scenarios contributed to above nominal delinquency rates on mortgages. The next wave of defaults will be credit card debt and this is starting to rear it's menacing head now. This coupled with the higher price of oil products, and an increase in the percentage of total oil consumption imported meant that on the average the US was sending approximately $800 billion out of the country each year to pay for gasoline and petroleum products. While this figures varies from source to source it is never less than $600 billion per year which since the start of the Iraq war in 2003. On top of that is the $10+ billion dollars per month direct cost of the Iraq war and the growing Federal budget deficit. It is the lack of this cash liquidity in the private sector that necessitated the government...
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