The Credit Crisis Explained With Motion Graphics

By Justin Gardner | Related entries in Economy, Money, Video, Wall Street

This nifty little video provides a good breakdown of what went down and why.



Basically, it boils down to what we all suspected: grossly irresponsible lending brought about by deregulation.

It seems so obvious in retrospect.

(h/t: The Crisis of Credit)


This entry was posted on Friday, June 12th, 2009 and is filed under Economy, Money, Video, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

14 Responses to “The Credit Crisis Explained With Motion Graphics”

  1. Jimmy the Dhimmi Says:

    Basically, it boils down to what we all suspected: grossly irresponsible lending brought about by deregulation.

    Did you miss the part that said the Federal Reserve lowered interest rates after the dot-com bust and 9/11? You know, the part in the beginning where the narrator describes what started it all?

  2. Kat Says:

    Deregulation? It was grossly irresponsible lending started by the lowering of interest rates which was totally backed by congress and everyone else who should have known better. Barney Frank should have been on our side on this and he helped perpetuate it. The psychology of this bubble is amazing when you look back at it. Everyone who SHOULD have been monitoring this and looking out were on board with this stupidity. Housing always goes up. Homes are worth all that money and you can always refinance! The business media dropped the ball, Congress dropped the ball, Wall Street regulators dropped the ball, and home buyers dropped the ball. The tulip craze all over.

  3. superdestroyer Says:

    The presentation also skipped over the problem that over half of the deaults in the U.S. were in Florida, California, ARizona, and Nevada. I guess the open borders and identify theft had nothing to do with it.

  4. Chris Says:

    yes, i’m sure it’s all mexico’s fault.

    lol what? that’s a retarded thing to say. Or, it could be that those are the markets that had the most inflated prices.

  5. Martin Andelman Says:

    It’s easy to make a laundry list of the contributing factors that led to our nation’s financial and economic crises, but I don’t find doing so useful or particularly fulfilling. I suppose it’s important from a correct-the-problems perspective, but since it’s become fairly obvious, to me at least, that we have no intention of attempting any such thing, for fear of angering the banking industry, I think it’s an exercise in fairness, but nothing more.

    The media, congress, Wall Street, home buyers, bond rating agencies, corporate greed… whatever. What I keep coming back to is one thing:

    The banks and investment banks broke the bond market. And that’s the proximate cause of our meltdown.

    Had the banks not constructed mortgage backed securities (aka “bonds”) with deficient cash flows that were subsequently rated “AAA,” we would have still endured a correction, but it would look nothing like the deteriorating mess we’re seeing today.

    The banks, of course, are behind the campaign to blame the borrowers, which is perhaps the most ridiculous item of this year and last. And of course, Republicans like to blame Democrats and visa versa. But at the core… smack dab in the middle… are the banks and investment banks that have so far emerged from this catastrophe unscathed… a stunning feat, to be sure.

    I think two factors will change this unpleasant reality.

    1. The coming wave of Alt-A/Option ARM mortgages won’t result in foreclosures across town in the less desirable neighborhoods, but on the streets of rich white people. That’s going to change public opinion in significant ways. It’s easy to blame irresponsible borrowers that live over there. It’s harder when they’re your neighbor or you.

    2. Mozilo’s one of the first, but God willing there’ll be quite a few more where he came from and the more the public sees these zillionaire criminals hauled into court of one kind or another, the more they’ll come to understand that it wasn’t really the borrowers who caused the problem, it was the bankers.

    Then, I believe, we will begin to see congress grow some cojones and legislate some significant change in opposition to the wishes of the banking lobby. And if not… well then a girl can dream, can’t she?

  6. superdestroyer Says:

    Martin,

    Then the quesiton is why is the foreclosure, bank failure, and mortgage problems so much bigger in California than in Texas. They are similar in demographics but very different in mortgages. Why did the regulations seem to work OK in Texas but not in California or Florida? Somehow CountryWide or Washington Mutual seem to not wreck so much chaos in Texas or North Dakota.

  7. michael reynolds Says:

    Super:

    Water. Waterfront and waterview property are very limited commodities. You can build more houses but you can’t build more shoreline. A bidding war over waterfront/waterview raises all prices in the state.

    A shoreline also geographically restricts expansion: you can’t build on water. In Texas you can build in every direction. Not so in CA.

  8. Tillyosu Says:

    The reason most of the foreclosures came from Areas like Arizona and California (and not Texas) is because those areas have development limitations. So when the demand for housing skyrocketed (the reason for which I will discuss in a minute), supply couldn’t keep up and prices became grossly overinflated.

    The reason demand skyrocketed was because of GOVERNMENT INTERVENTION IN THE MARKETS through Fannie, Freddie, and HUD. The lending and “greed” everyone is decrying was not “irresponsible,” it was INCENTIVISED by stupid politicians seeking votes. When the GSEs are guaranteeing loans, and the federal government is backing them, why not bet the house on it? Pun intended. Is it any wonder that their failure (the GSEs) kicked off this entire crisis? With no guarantors, the value of those assets plummeted.

    Here’s a tip Justin: next time, try getting your economic insight from something other than a cartoon.

  9. Justin Gardner Says:

    Tillyosu,

    No doubt Fannie, Freddie and politicians share some of the blame. But had the banks not been allowed to leverage themselves 30 to 1, the housing crisis wouldn’t have been this bad. Because it wasn’t just sub prime. It was all kinds of suspect loans, the effects of which haven’t even been really felt yet.

    Also, please don’t be that guy who just comes on to a site and tells everybody they’re stupid. It’s not welcome, and if that’s all you have to offer you can go away.

    Martin,

    Great breakdown of the situation. No doubt, lots of blame to go around, but when you look at the banks and then AIG, the reasons become much clearer. Everybody was whistling past the graveyard because the money to be made was insane. So, in the future, we have to constantly be on the lookout for these schemes because they inevitably turn out to be shamtastically bad.

  10. Tillyosu Says:

    Alright Justin. What then would be the appropriate degree of leverage for these types of investments? I mean, you’re obviously the expert right? Or perhaps we should just let someone in Washington or the SEC dictate how leveraged a given investment is.

    Call me crazy, but I tend to think that the appropriate degree of leverage should be determined by the person who, oh I don’t know, actually has some skin in the game, rather than some bureaucrat who isn’t personally affected by the outcome.

    And I didn’t come here and call everyone stupid. Hell, I didn’t even call YOU stupid. I simply suggested that a ten minute online cartoon may not be the best source of analysis of the financial crisis. If that made you FEEL stupid, then I apologize.

  11. Justin Gardner Says:

    Tillyosu,

    Actually yes. We should reregulate the market so they don’t make massively risky investments that could cripple our entire economy again. That’s the government’s job since businesses are in the business to make money and don’t really care how they do it. That’s how our system works. Checks and balances. It’s just that this time, because of deregulation, there were virtually no checks or balances. And now that’s going to change.

    As far as “skin in the game,” well, how much skin in the game does a CEO have? That’s not their money, it’s the stockholders’. So they actually didn’t have a lot of their own skin in the game. And if you honestly think that regulations should be determined by people in the industries themselves, well, you need to pay closer attention to what has happened in the past year in the finance sector to see how that works out.

    Last, yes…you didn’t call anybody stupid, but your tone certainly suggested it. And I’m talking about over on the cigarette post too. Personally, I don’t really care if you think we are or not, but this is my blog and I keep the peace. So please, adjust the attitude a bit if you want to continue posting here.

  12. michael reynolds Says:

    Talking to free marketeers is a little like talking to Christians. They have a set of assumptions and when questioned, or presented with conflicting evidence they simply restate their assumptions.

    Economics is not supposed to be religion. Business necessarily good, government necessarily bad is an assumption not a fact. I’m still waiting for the first person to say, “Okay, we’ve tested this hypothesis and have proof.”

    Make a list of the ten most successful countries on earth in terms of wealth, stability, freedom, etc… 100% of them have a mixed economy, some free market, some regulation, some degree of government control, and fairly substantial taxes. Every one of them. The evidence is in fact overwhelming that the road to success is a mix of free market and state control.

  13. rob Says:

    Mike, you’re forgetting that the top ten also have an inordinate share of valuable resources compared to their population size…

    Enough income and a small enough population can smooth over all sorts of administrative problems.

  14. James Dupont Says:

    I agree the interest rates created a lot of this. And unfortunately we are doomed to repeat it. Last time I checked hardly anyone has gone to prison for any of this. And the other time this happened was in the late 80′s early 90′s with the S&L fiasco. And very few people went to prison then either. It is pretty sad when such a small subset of our population can create such havoc on the rest of the population.

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