The Crisis of Credit Visualized
February 19, 2009 3:40 PM Subscribe
The Crisis of Credit by graduate design student Jonathan Jarvis is a thorough and visually appealing animation which explains the current credit crisis in clear terms. From the ever helpful NPR Planet Money.
I posted this graph illustrating the quantity of lending activity 1997-2007.
Incorrect definition of "subprime" at 7:25, though. Subprime refers to low credit scores, but the features of neg-am, no down payment, and SISA was (TMK) Alt-A lending, not "subprime" per se.
posted by troy at 4:24 PM on February 19, 2009
Incorrect definition of "subprime" at 7:25, though. Subprime refers to low credit scores, but the features of neg-am, no down payment, and SISA was (TMK) Alt-A lending, not "subprime" per se.
posted by troy at 4:24 PM on February 19, 2009
8:45, missing the reason WHY home prices go down -- they were inflated by all this stupid lending. Stated income resulted in raising the actual debt-to-income from 35% to 50% or more. Qualifying borrowers on the Neg-am / pay option teaser rate and not the fully amortizing back-end rate juiced buying power by $100s of thousands of dollars. No down of course meant that nobody cared what the house cost since the bank was literally buying it for you.
posted by troy at 4:28 PM on February 19, 2009
posted by troy at 4:28 PM on February 19, 2009
I thought it was totally annoying - way too many little pictures sliding around and flashing back and forth. Too fast, too frantic, too many stupid distracting sound effects. But I'm old and crabby and am perfectly happy with something to read. The pictures just get in the way. I do love Planet Money, however.
posted by otherwordlyglow at 4:38 PM on February 19, 2009 [1 favorite]
posted by otherwordlyglow at 4:38 PM on February 19, 2009 [1 favorite]
He totally glossed over credit default swaps. The beginning of the end was when all those issuers of swaps started getting phone calls that it was time to pay up.
posted by bigmusic at 4:54 PM on February 19, 2009
posted by bigmusic at 4:54 PM on February 19, 2009
Is it narrated by a very good computer voice or a really bad human narrator?
posted by smackfu at 5:18 PM on February 19, 2009
posted by smackfu at 5:18 PM on February 19, 2009
I found it rather interesting to watch, from a technical communications viewpoint. Consistent visual metaphor, the emphasis on the cyclical nature of the issue, and an end-to-end narrative approach. It does gloss over some details to provide a basic overview, but all in all a worthwhile few minutes spent online.
posted by FormlessOne at 5:39 PM on February 19, 2009
posted by FormlessOne at 5:39 PM on February 19, 2009
If funds get a little dicy at the bank, the bank can attempt to become solvent by taking other players' money or property, or cajoling the players into some sort of deal.
Your metaphor is missing one key member: the guy with the guns who "facilitates" the transfer from the players to the bank.
posted by ZenMasterThis at 5:43 PM on February 19, 2009
Your metaphor is missing one key member: the guy with the guns who "facilitates" the transfer from the players to the bank.
posted by ZenMasterThis at 5:43 PM on February 19, 2009
...or am I not supposed to think of it that way?
posted by ZenMasterThis at 5:48 PM on February 19, 2009
posted by ZenMasterThis at 5:48 PM on February 19, 2009
As someone who doesn't know a lot about finance, this was quite helpful for understanding the crisis. I was quite aware that it's an oversimplification, but I'm OK with that.
posted by Jon_Evil at 6:45 PM on February 19, 2009
posted by Jon_Evil at 6:45 PM on February 19, 2009
8:45, missing the reason WHY home prices go down -- they were inflated by all this stupid lending.
Complicated by realtors shutting out realistic home appraisal professionals in favor of appraisers who were inflating in order to boost their own commissions (see Appraised Out of Business) or banks telling appraisers what numbers they needed (instead of the other way around) so they could generate commissions.
posted by jeanmari at 6:52 PM on February 19, 2009
Complicated by realtors shutting out realistic home appraisal professionals in favor of appraisers who were inflating in order to boost their own commissions (see Appraised Out of Business) or banks telling appraisers what numbers they needed (instead of the other way around) so they could generate commissions.
posted by jeanmari at 6:52 PM on February 19, 2009
A great primer, certainly.
And:
Complicated by realtors shutting out realistic home appraisal professionals in favor of appraisers who were inflating in order to boost their own commissions...
Boy howdy. I thought I was buying at the top of the market, and in the month between initiating escrow and the close, my appraised value went up more than 10% of what I was paying -- and they didn't even go in the house.
posted by davejay at 6:55 PM on February 19, 2009
And:
Complicated by realtors shutting out realistic home appraisal professionals in favor of appraisers who were inflating in order to boost their own commissions...
Boy howdy. I thought I was buying at the top of the market, and in the month between initiating escrow and the close, my appraised value went up more than 10% of what I was paying -- and they didn't even go in the house.
posted by davejay at 6:55 PM on February 19, 2009
8:45, missing the reason WHY home prices go down -- they were inflated by all this stupid lending.
It looks like he does explain it, just a few seconds after 8:45. He says the prices go down because there are so many houses put on the market due to foreclosures.
Anyway, I thought it was pretty fun, and pretty close to my understanding. I do wish he had explained credit default swaps and how all that works. And he doesn't explain how banks are hiding the fact that they're bankrupt, pretending they are solvent, and trying to con the government into giving them billions of dollars for them to fix the problem.
He also dosn't explain why this affecting the stock market, causing job losses, and so on.
But anyway, fun little video. I think it would be difficult to explain everything.
posted by delmoi at 8:50 PM on February 19, 2009
It looks like he does explain it, just a few seconds after 8:45. He says the prices go down because there are so many houses put on the market due to foreclosures.
Anyway, I thought it was pretty fun, and pretty close to my understanding. I do wish he had explained credit default swaps and how all that works. And he doesn't explain how banks are hiding the fact that they're bankrupt, pretending they are solvent, and trying to con the government into giving them billions of dollars for them to fix the problem.
He also dosn't explain why this affecting the stock market, causing job losses, and so on.
But anyway, fun little video. I think it would be difficult to explain everything.
posted by delmoi at 8:50 PM on February 19, 2009
I didn't understand something. When the bomb first blows, the banks are the ones holding the worthless houses. Why is that, if the banks were selling to investors all along, wouldn't investors own the majority of mortgages?
posted by stbalbach at 9:27 PM on February 19, 2009
posted by stbalbach at 9:27 PM on February 19, 2009
^ Citi kept a lot of mortgages on its books apparently. As did Wamu. Wachovia acquired Golden West with its toxic holdings in 2006. Wells has some exposure to 2nds. BofA was doing relatively good until they decided to buy Countrywide and Merrill.
The bloomberg terminal screen dump here is going on a year old but tells the tale of the tape well enough in the "Level 3 Assets (M)" column. The bigger that was to Level 1 the shakier the firm. Level 2 assets are more likely to be Level 3 than Level 1 so there is concern housed there, too.
posted by troy at 10:40 PM on February 19, 2009
The bloomberg terminal screen dump here is going on a year old but tells the tale of the tape well enough in the "Level 3 Assets (M)" column. The bigger that was to Level 1 the shakier the firm. Level 2 assets are more likely to be Level 3 than Level 1 so there is concern housed there, too.
posted by troy at 10:40 PM on February 19, 2009
Damn. I was just creating this as a FPP. I lose.
posted by Rafaelloello at 11:19 PM on February 19, 2009
posted by Rafaelloello at 11:19 PM on February 19, 2009
Doesn't get into Synthetic CDO's (constructed from CDS's and SPV's), but hey, how far can a cartoon go? Also, neglects to mention how the Synthetic CDO's opened up the commercial paper market for failing blue chips. I digress. Great video.
posted by Rafaelloello at 11:25 PM on February 19, 2009
posted by Rafaelloello at 11:25 PM on February 19, 2009
stbalbach: "15I didn't understand something. When the bomb first blows, the banks are the ones holding the worthless houses. Why is that, if the banks were selling to investors all along, wouldn't investors own the majority of mortgages?"
What's left unsaid is this:
There is yet another level. Beyond the sub-primes are the synthetic sub-primes. CDS's are fashioned into synthentic CDO's which is what screwed the banks. Think of it this way: For every bad mortgage out there the banks managed to create 10-15 "bets" on each of these losing mortgages and they took the wrong side of the bet every time.
posted by Rafaelloello at 11:33 PM on February 19, 2009
What's left unsaid is this:
There is yet another level. Beyond the sub-primes are the synthetic sub-primes. CDS's are fashioned into synthentic CDO's which is what screwed the banks. Think of it this way: For every bad mortgage out there the banks managed to create 10-15 "bets" on each of these losing mortgages and they took the wrong side of the bet every time.
posted by Rafaelloello at 11:33 PM on February 19, 2009
Some nice graphical narratives from Portfolio magazine. Scroll down to "Crisis Made Easy." Or easy.
This one, on CDOs, was very helpful to me when I was first trying to get my head around all this.
posted by foxy_hedgehog at 2:20 AM on February 20, 2009
This one, on CDOs, was very helpful to me when I was first trying to get my head around all this.
posted by foxy_hedgehog at 2:20 AM on February 20, 2009
Back when I was a boy, we walked uphill both ways to school and monetary policy was a simple matter of addition and subtraction. You younguns and your CDOs and CDSs. Get offa mah lawn!
posted by jamstigator at 5:47 AM on February 20, 2009 [1 favorite]
posted by jamstigator at 5:47 AM on February 20, 2009 [1 favorite]
I couldn't see anything. Do I have to have some kind of plugin?
posted by EmpressCallipygos at 9:03 AM on February 20, 2009
posted by EmpressCallipygos at 9:03 AM on February 20, 2009
Felt he kind of oversimplified around 5:30 and 8:30 as it has been said, but it was still a decent presentation. Not quite sure where the investor calling the homeowenr to tell them their investment is worthless. Wouldn't this be more the investor's problem, not the homeowner?
posted by cavalier at 9:16 AM on February 20, 2009
posted by cavalier at 9:16 AM on February 20, 2009
^
The investor is calling the homeowner because the money he was investing was coming from the homeowner's pension fund, mutual fund, etc....and now there's no money left. It's not like the investors were gonna use their own money to buy these high-risk CDOs.
Which begs the question: what is the downside to a law that requires fund managers to invest a sizable portion of their own portfolio into the fund they are managing?
posted by wabashbdw at 12:04 PM on February 20, 2009
The investor is calling the homeowner because the money he was investing was coming from the homeowner's pension fund, mutual fund, etc....and now there's no money left. It's not like the investors were gonna use their own money to buy these high-risk CDOs.
Which begs the question: what is the downside to a law that requires fund managers to invest a sizable portion of their own portfolio into the fund they are managing?
posted by wabashbdw at 12:04 PM on February 20, 2009
This was really excellent. What kind of software do you use to put together animation like that?
posted by knguyen at 12:35 PM on February 20, 2009
posted by knguyen at 12:35 PM on February 20, 2009
Did anyone notice that around 6 minutes, when they are discussing the Safe, Okay, and Risky boxes, the return on "Safe" goes from 4% to 3%? Is this intentional?
posted by fiercecupcake at 1:27 PM on February 20, 2009
posted by fiercecupcake at 1:27 PM on February 20, 2009
Ohhhhhh. That's the Credit Default Swap fee. Cool. I didn't get that the first coupla times around. Carry on.
posted by fiercecupcake at 1:30 PM on February 20, 2009
posted by fiercecupcake at 1:30 PM on February 20, 2009
It seems that Alan Greenspan in 2001 is missing in this excellent piece - as was he in the recent frontline documentary... I believe basically told foreign investors that t-notes were now going to provide NO return - and unless we are all naive, pointed them to the American real estate market as the safe place to put their cash... thus flooding the real estate market with capital. and we know the rest of the story... I would like to see a little better journalism on this one.
posted by specialk420 at 1:01 AM on February 22, 2009
posted by specialk420 at 1:01 AM on February 22, 2009
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