Where did all the money go?
March 20, 2009 3:35 AM   Subscribe

Where did all the money go? is just one of the enties to GOOD's financial crisis infographic competition.

The winning entry (Part 1,Part 2) is excellent, but the economics geek in me liked the extra information on the nature of money in the first link.
posted by pharm (30 comments total) 10 users marked this as a favorite

 
And I sport the mispelt word only after I've posted of course. Sigh.
posted by pharm at 3:36 AM on March 20, 2009


You're a real spot for bringing this to our attention pharm, thanks!
posted by turgid dahlia at 3:37 AM on March 20, 2009 [3 favorites]


For infographics, they aren't very good. Lots of information all over the place, with not much visual thread to bind it all into a narrative. Someone should award the winners copies of Visual Explanations.
posted by Blazecock Pileon at 3:41 AM on March 20, 2009


This weekend you can visit the houses of some of the executives' who stole your money!
posted by gman at 4:16 AM on March 20, 2009


OK, I get it. I've seen enough diagrams to understand how we got into this mess. How about a diagram to explain how throwing hundreds of billions of dollars at these institutions is going to fix it?

During the development of the A-Bomb in WWII they had multiple schemes to come up with the solution because they just weren't sure which one would work. Doesn't anyone have an alternative plan to the banking crisis that can be simultaneously implemented just in case throwing money at the problem doesn't work?
posted by digsrus at 5:03 AM on March 20, 2009


great read. Thank you!
posted by zorzini at 5:10 AM on March 20, 2009


These diagrams have been bugging me, I think it's because helping to understand how the whole thing blew up makes it seem somehow normal or expected, of course it's not.

What these diagrams are all missing are the thought processes inside all of the bankers, hedge funds and investors that decided it was OK to screw people over to make themselves richer, it wasn't simply about responding to incentives, these people had a fucking choice. It doesn't help that they're all cheery vectors, perky hues and subtle gradients (and it made me think are graphic designers so tonally bankrupt that the only affects they can project are irony, nostalgic simulation and wuh???? collective emoting post neoliberal optimism is going to be interesting). What I would have liked to have seen is a painfully banal black and white decision tree outlining the possible choices present at each stage and how many passed up doing the right thing for a quick buck. I'm sure it's not always that simple, but I'm also sure it was for some of them at least some of the time. Maybe it's time to rejig Arendt's banality of evil for the new millennium.
posted by doobiedoo at 5:38 AM on March 20, 2009 [2 favorites]


The infographic missed an arcane but key piece of the puzzle: CDS's, credit default swaps. This is where AIG got into trouble, and is partly what enabled the trade in CDO's to explode. It's also how a relatively manageable devolution of assets into toxic assets multiplied into staggeringly huge losses. The money AIG and other CDS issuers got for covering the bad deals was perhaps 5% of the value of the deals themselves.

I think a decent metaphor is that we have a ship has a hole in it. We are pumping water out of the ship as fast as we can, but we don't really know if we are pumping enough out or are doing it fast enough. Some people think that we can't pump enough out, so they say let the ship sink, and we can build another one (these are the people who own their own boats I might add). Some people think that we can pump just enough to keep it from sinking entirely, and we can get the ship fixed.

Some people are angry that the ship's crew got the hole in the boat to begin with, and don't want to pay the crew, most of whom are are frantically trying to fix the ship. Some of the ship's crew are pocketing the ship's silverware, thinking that either way, they are looking out for themselves.

Argh. My metaphor is getting out of control. This is the kind of thing you write a novel about.
posted by Xoebe at 5:45 AM on March 20, 2009 [1 favorite]


Argh. My metaphor is getting out of control. This is the kind of thing you write a novel about.

I just hope there are no pirates on board this ship. We are in enough hot water as is!

I really like how a bunch of greedy jerks screw everything up because they wanted to make an extra buck or 2 and we are the ones that end up suffering. Also you cannot blame the poor for this either. Yeah they didn't have the money to pay back the loan but when you start trading something that has nothing behind it you are going to run into problems. (the loan might be worth 100k in 30 years but it's worth jack right now). Stupid greedy people got us into this problem.

Lastly on the radio into work I heard someone talking about how the Execs of AIG are not taking their pay and the CEO is making only a dollar and how noble they are... blah blah blah blow it out your ass talk. Fuck them. They should be doing everything to fix this! They should also take the blame for this mess. When I was little if I spilled something on the kitchen floor and the dog wasn't around I had to (this next part is important)

==> CLEAN UP MY OWN MESS<==

I didn't get praise from my dad or mom. I had to clean it up. Being honorable and courageous is going above and beyond the call of duty... all these jerks are doing is starting to act responsible for the mess they made.
posted by Mastercheddaar at 6:24 AM on March 20, 2009


M3 - F (M2+M1+M0) | /dev/null

...where F is the fuckup constant.
posted by odinsdream at 6:44 AM on March 20, 2009


Rather, M3 - (1/F) (M2+M1+M0)
posted by odinsdream at 6:45 AM on March 20, 2009


for all the shiny graphics, this is basically the right-wing view that the current crisis was created by foreigners saving too much money and (brown?) people buying houses they couldn't afford...
as versus Greenspan/Wall Street's attempt to create another bubble after the collapse of the internet bubble.
posted by geos at 6:58 AM on March 20, 2009


Good lord, do they not have a copy editor?? LOOSE is not the same as LOSE!!!

Sorry, I had to get that off my chest.
posted by chowflap at 7:29 AM on March 20, 2009 [3 favorites]


It all comes down to the securitization of mortgages. Every time it has been tried, it has been a disaster. We can blame the banks all we want, but we liked our houses rising in value, we liked being able to get bigger loans than we could really afford. John Q. Public is not without culpability in this mess. The banks were a lot of the problem, but we let them get away with it because we wanted to believe the hype.

I'm pretty tired of the holier than thou posturing of everyone that doesn't work for a bank, we are all to blame to some degree. You should be just as mad at the greed of your fellow citizens and the turn-a-blind-eye policies of your government as you are at the bank. Scapegoating is fun when there is a mob running around with a hanging rope, but doesn't help anyone get to the real root of a problem.

I don't work for a bank, I don't particularly like them, but if we don't look at the causes of this mess honestly we will never learn from it. Its easy to go "the banks did it - fuck them" but that does absolutely no good past catharsis. Erm, strike that, we never actually learn from anything, if history is any indication, so to be more realistic, hoepfully this doesn't happen again terribly soon. Nothing to see here, move along.
posted by jester69 at 7:33 AM on March 20, 2009


Oh, and i'm as left wing as they come, and it wasn't any particular color of people that wanted easy mortgages, it was everyone.
posted by jester69 at 7:35 AM on March 20, 2009


What these diagrams are all missing are the thought processes inside all of the bankers, hedge funds and investors that decided it was OK to screw people over to make themselves richer, it wasn't simply about responding to incentives, these people had a fucking choice.

Well, for a graphic depiction of that mindset, you could always pick up an old "Scrooge McDuck" comic book in which he's swimming in a big pile of coins going "wheeeeeee!"
posted by EmpressCallipygos at 7:49 AM on March 20, 2009 [2 favorites]


I'm pretty tired of the holier than thou posturing of everyone that doesn't work for a bank, we are all to blame to some degree. You should be just as mad at the greed of your fellow citizens and the turn-a-blind-eye policies of your government as you are at the bank.

you can chase moral hazards all day if you like: try dropping your wallet and watch and see if somone trys to pocket it. Do it once and you find a crook, do it all day long and you discover something about human nature.

the fact is that 'the banks' were responsible for the collapse of lending standards and they did it because there was 'mad money' to be made selling mortgages upstream.

what made this possible was greenspan's monetary policy and the creation of a essentially unregulated 'derivatives' market.

I'm perfectly happy to blame greedy american consumers but if I start at the top with those who had the most responsibility I doubt i'll have time to make it down to the little guys just trying to get something for nothing...
posted by geos at 8:09 AM on March 20, 2009


Once you allow the securitization of mortgages, banks have no interest in making sure they loan to responsible people. They won't be holding the hot potato for long, they just pass it on. The law that allowed this was much more to blame than the banks. They were just following the laws and maximizing their shareholders interests. The banks that bought and held CDO's were being stupid, and going against shareholder interest, IMHO. Without the laws allowing CDO's, none of this would have happened. Common sense says if banks have no interest in the outcome of a loan, they aren't going to be that careful making it.
posted by jester69 at 8:30 AM on March 20, 2009


The graphic in the first link does a better job of explaining the process than the winning graphic IMO.

Is there a distinction made between "lose" and "loose" in the language anymore or are they interchangeable these days?
posted by mrducts at 8:51 AM on March 20, 2009


I'm sorry if I come off holier than thou, I really need to work on that, and you're right jester69, it's more than a one sector problem and it's too easy to blame greedy rich people for all the problems. But I think the point about all these visualisations still stand, in posing the problem as simply one of following the incentives at the end of all our collective noses it suggests that we fell unwittingly into a big hole by accident, whereas this is very much a man made mess that arose from indulging some of our worst instincts by choice. The representation of the crisis as some sort of automatic cascade failure elides this massive failure of judgement and seems to miss the point in "understanding" the crisis.
posted by doobiedoo at 8:58 AM on March 20, 2009


Everyone is to blame for a % of the problem. However the banks and their greed are in the majority here. You have a house that everyone says is worth a ton more than it should be, are you going to sit there and say to yourself "Hey my house wasn't worth this much when I bought it!?!?! Should I sell it and make a profit or should I sell it for what I paid for it?" No you are going to sell Sell SELL and make a profit. Everyone would. Then down the line loan requirements got lazy and everyone and their mom were approved for 100k loans for 50k houses. This was the banks fault. They spilled the milk, they should be the ones to clean it up. If we ( the working class) feel guilty we can hand them a towel. In fact we already did... a bunch of them... ABOUT 1 trillion dollars worth of them.

Make no mistake, the greed for million dollar bonuses and "lend to anyone tactics" by bankers is why we are where we are.
posted by Mastercheddaar at 9:18 AM on March 20, 2009


I'm pretty tired of the holier than thou posturing of everyone that doesn't work for a bank, we are all to blame to some degree. You should be just as mad at the greed of your fellow citizens

Funny thing about populous greed is it was alive and well in the 40s/50s/60s/70s/80s - oh, EVER, ok - but for some very odd reason those greedy bastards were not handed a check by the banks back then.

And the ship metaphor missed the Captain paying the crew extra for a job well done.
posted by Kensational at 9:36 AM on March 20, 2009 [1 favorite]


No you are going to sell Sell SELL and make a profit. Everyone would.

That is exactly my point. The banking industry lobbied to get a cherry of a law that allowed them to sell their mortgage debt for a profit. Once they had the law, they were going to take advantage of it, anyone in their position would. The people that bought the debt, I have no idea what they were thinking, seems like a pretty dumb move. Giving banks the law they wanted may well have been the biggest mistake in this whole mess.
posted by jester69 at 9:39 AM on March 20, 2009


The banking industry lobbied to get a cherry of a law that allowed them to sell their mortgage debt for a profit.

You're right, it IS their fault!
posted by adamdschneider at 9:55 AM on March 20, 2009


You're right, it IS their fault!
Nobody had to give it to them. They could have been denied...
posted by jester69 at 10:09 AM on March 20, 2009


doobiedoo: "What these diagrams are all missing are the thought processes inside all of the bankers, hedge funds and investors that decided it was OK to screw people over to make themselves richer, it wasn't simply about responding to incentives, these people had a fucking choice. …"

I've been paying fairly close attention to this stuff since it all started to come undone more than a year ago, and I don't really know who you're talking about. I don't think there's any one place you can point a finger at and say "there, they caused this."

At each step along the path people were doing things that, at the time, made relative sense. Mortgage sellers got people into loans that in retrospect were a bad idea, but at the time seemed like a good way to make houses (or bigger houses, or renovations, or whatever) affordable, because the housing market was on fire and those loans didn't look bad if you assumed that prices would continue going up forever, or at least for the foreseeable future.

Much further down the line, banks, pension funds, investment advisors, hedge fund operators, and everybody else bought the CDOs made from those loans because they offered ridiculous returns and, again if you assume that housing prices continue to increase, had seemingly no risk or downside.

The closest you can get to finding a truly guilty party, at least to me, is at the ratings agencies. They had the responsibility for quantifying the risk embodied in the CDOs and they failed spectacularly to do so, because they drank the same Kool-Aid that everyone else was having. But once they did that, everyone downstream — who depend on the ratings those agencies stamp on securities — was put in the position of second-guessing the ratings people, who supposedly knew what was going on. So if we were going to throw somebody or some group of people up against a wall in front of a firing squad, just to make us feel better, I guess I'd say the ratings people would be a good choice.

But in general, this was not a problem caused by some small number of nefarious individuals, much as a lot of folks would like to believe it was in order to confirm their biases. This was a systemic failure. Lots of people did things that made sense to them, at the time, given the information they had at hand, but were staggeringly wrong in retrospect and tended to compound each others' mistakes.

It's a direct result of a very natural human trait where people will subordinate their good sense to a sort of mass hysteria; when housing prices were going up, nobody wanted to be left out, even if rationally they knew it had to eventually end. So consumers decided to buy more house than they could afford, and mortgage lenders came up with financing vehicles (your zero-down double-mortgage interest-only no-income-verification jumbo loans) to get them into those houses, and those debts were repackaged and sold as safe because the houses would always be there and represent a solid asset even if the debtor couldn't pay, and people bought the debt because it paid nice returns.

And we all got screwed because the premise all of this was built on was wrong. As soon as the economy hiccuped, it became clear that housing prices were overinflated and could (and would!) go down, meaning lots of people were underwater on those shady mortgages, and the repackaged assets based on them really weren't safe, and the people holding them didn't have the nice income streams they thought they'd bought.

But all along that chain people were doing things that made sense within the scope of the flawed premise. Certainly there were Bernie Madoffs and other Gordon Gecko wannabes making a fast buck in all this, but they didn't create the tsunami, they just rode it for a while.
posted by Kadin2048 at 10:57 AM on March 20, 2009 [1 favorite]


It's a direct result of a very natural human trait where people will subordinate their good sense to a sort of mass hysteria; when housing prices were going up, nobody wanted to be left out, even if rationally they knew it had to eventually end.

This is detailed in the 1852 book Extraordinary Popular Delusions and The Madness of Crowds [Gutenberg link to full text] by Charles MacKay. This entertaining book should be required reading for anyone interested in spotting bubbles before they burst.
posted by benzenedream at 12:59 PM on March 20, 2009 [1 favorite]


Securitization of mortgages is not the problem in and of itself. It's a perfect storm of the mortgage backed securities being hedged by credit default swaps and mark to market rules forcing banks to take enormous paper losses on the MBS they continued to hold because the market for them is so shitty they can't be sold at any reasonable price at the current time.

The banks would mostly be fine if they were just booking the loss caused by the increased expected default rate. By and large, cash flow isn't an issue, it's the writedown of the MBS forcing them to come up with ridiculous amounts of capital to remain within regulatory minimums because they are forced to write the MBS down to ridiculously low levels that essentially anticipate something around an 80% default rate with zero recovery in a foreclosure sale.

AIG would be fine if CDS had been regulated as the insurance they are.

What we have on our hands is mainly a regulatory failure of enormous proportions.

Going forward we mainly need to fix the mark to market rules to account for dysfunctional markets, which is happening, we need to regulate CDS as insurance (if you write a CDS contract, you should have reserves to pay for it), and legally force banks to retain enough of the MBS to make it in their best interest to have reasonable underwriting standards.

We need to outlaw the sale of CDS contracts to people who don't actually hold the position they are purportedly hedging against. It's all the made up shit that turned a burst bubble from a problem into a catastrophe.

Also, bringing back the separation of investment banking and commercial banking would be great.

Lastly, we need to prosecute the fucks who confiscated perfectly good banks so as to sell them at a ridiculously low price to their friends.

Oh, and we should seriously consider limiting the size of any single financial institution. (or any other company, for that matter)
posted by wierdo at 1:30 PM on March 20, 2009


jester69: "It all comes down to the securitization of mortgages. Every time it has been tried, it has been a disaster."

Naturally, you mean except for the many decades when it worked amazingly well, I assume?

wierdo: "...and legally force banks to retain enough of the MBS to make it in their best interest to have reasonable underwriting standards"

...or require them to hold capital reserves against the representations and warranties [pdf] they provided to the secondary purchasers about the quality of the loans they were selling... you know, as if they were banks.
posted by dilettanti at 6:35 PM on March 20, 2009


The winning entry also had a slick animated version. (previously)
posted by Rhaomi at 6:47 PM on March 20, 2009


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