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The Credit Crisis Visualized

Graphic artist Jonathan Jarvis has produced a short animated film describing the roots of our current economic crisis today.  There have been numerous websites and cartoons attempting to explain the crisis, but this is one of the very best.  To the point and easy to understand, there comes a point in the presentation when the reality of what will happen and what has happened will hit you.  Comes in two parts (shown above).

Links: Crisis of Credit Visualized website

- via jonnyj

From the Upcoming ueue, submitted by Geekazoid.


Yeah, very well described. As a Realtor, I can vouch for the whole darkness at the end. Strange that two short years ago we were so busy, and now it's like a funeral home out there. One thing that they left out, because it's a touchy issue, is the government requirements of a certain percentage of minority families getting loans, which added fuel to the sub-primes.
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Johnny Cat said: "One thing that they left out, because it’s a touchy issue, is the government requirements of a certain percentage of minority families getting loans, which added fuel to the sub-primes"

Exactly. It is also touchy because it ties back to the Democrats and so is hard for the media to blame on ChimpyBushHitler.

On thing I don't understand is why investors are not saying: "Hey! These are houses with property underneath them. If I buy them off of the panicky Peters they will eventually be worth something."

I mean, I know young people who are coming out of college and buying houses. It's not like life stops because some people's houses declined in value. Yes, there would be some property tax to pay but if you demolish the house you would only be paying tax on the land and as the market rebounded you would be able to rebuild a more modern, energy efficient homes.

What am I missing?
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Snake Oil Baron, you are missing that investors are betting home prices will drop a LOT more in the next year or so. The real bargains are for those who wait until things are much worse.
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Great post, I found it very enlightening. We recently sold our house, not because we had to, but because we felt it was to big for us, but we lost our shirts on it. And we did a for sale by owner. If we had gone through a Realtor, we would have walked away owing money. I wasn't in the sub-prime category, but I don't every remember being asked my race when I applied for a loan. My broker didn't meet me until it was time to close, and the bank certainly never looked at me. So other than going by a surname, how is the government determining how many mortgages are going or not going to minorities?
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that was very simple and very nice. i've always found the housing crisis interesting since i used to work in the office of a window and door manufacturer.
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It's a bummer that a peppy presentation doesn't make this all any easier to swallow. 8-) Actually it's really surreal...sort of like a cartoon of our own doom. Nicely done though.
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Nice presentation, but I wish that it touched some on how a fiat monetary system virtually guarantees that such crises will occur.

This, as well, is pretty simply illustrated. Basically as soon as money is loaned at interest there is not enough money in existence to pay back the loan... the loan can only ever be paid back if more money is created. Banks know this and economists know this, and this is why ALL fiat money systems have inflation - deflation is a very bad sign and a sign of collapse in a fiat economy. The problem is that no economy in the world has ever grown indefinitely- and as soon as it stops growing the largest risks WILL default.
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These videos do a relatively good job explaining the issue but they do indeed leave out the CRA (Community Reinvestment Act) and requirements that 50% of all FannieMae/FreddieMac loans be to minorities and that "red lining" was to be prohibited.

Why is that important you ask?

Well, F&F are known as the secondary market. In order to have access to the secondary market as a place to sell the mortgages they were writing the banks had to comply with F&F standards for those loans. F&F, under the direction of HUD drove the standards down so that more people would qualify. Thus, the banks who wanted access to the secondary markets had to comply with those same standards.

Many banks were sued to force them to make loans that they didn't want to make.

One of the Plaintiffs? ACORN.

One of the attorneys for ACORN? Barack Obama.

The train was on the tracks and moving.

Then, F&F began issuing default insurance on those same risky loans in order to assure the nervous investors who took the mortgages off the hands of F&F.

During the time all of this was going on, the execs of F&F were getting rich. Really, really rich. While they were getting rich they were kicking millions of dollars toward Democrat candidates and the Democrat Party. They were also cooking the books and committing accounting fraud at the same time.

Who were these people you ask?

Franklin Raines, Jamie Gorelick, Rahm Emanuel, and others. The same people who drove F&F into the ground are now acting as advisers to the Obama Administration.

Who was the number one recipient of F&F campaign money?

Chris Dodd.

Number two was Barack Obama.

When F&F collapsed the investors realized that their insurance policies were worthless and they were stuck with time bombs as the videos illustrated.

Add spiraling housing prices to the mix and you have the perfect storm.

It's a very tangled web but easy to decipher when you start putting it together.
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Great video - although at the end of part one, I thought it funny that the graphic portraying the 'Less Responsible' homeowners as baby producing smokers.
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Very well made animation that succinctly describes the current crunch we're in. Of course, just magnify this to a global scale and we'll have that world wide recession.
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@ Aye Chihauhau - MEOW!

Remember, this video *simplifies* what is going on, which I though summed up the whole fiasco quite well in about 11 minutes.
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Moi,

The video "simplifies" at the expense of a very key piece of information.

The Fed Gov't forced the banks to make the loans which ultimately led us to where we are today.

Overlooking that is like not seeing the water when you travel to Niagara Falls.
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They leave out the CRA requirements in these videos because the CRA provisions were never an issue. The CRA requirements have been the same for years and the only people screaming "CRA's!, CRA's!" are people with a political agenda.

The credit freeze did not happen because the banks were lending under the CRA provisions. The problem as these videos have so aptly pointed out was that you had banks giving $300,000 loans to anyone with a 680+ FICO score without even bothering to see if they had a job first. The government did not make them do this. The standards were dropped in the fight for investor dollars. If company A started to offer a NINA loan, Company B had better follow suit or else they would lose out on millions/billions of dollars. It was free market economics 101, and with no one there to regulate lending standards the banks dug themselves deeper with every loan.

People that want to blame the CRA either have no grasp over the economic reality of the situation or they have no problem deluding themselves to promote a political agenda.

Look at the biggest housing busts in the nation, its not the Detroit or Compton markets that are bleeding the banks dry. Its Las Vegas, Long Beach, New York, Oakland, Miami.... these are not redlined areas. There are entire neighborhoods in these city's filled with foreclosed $500,000 homes. And if you are still in denial look at the foreclosure statistics for redlined districts, low income home loans have only seen a slight uptick in the rates of foreclosures. Compare those foreclosure numbers with the half a million dollar homes in the suburbs... its gets real easy to see where the problem lies.
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Moi,

Facts are my forte. Truth is my passion.

Facts are not malleable and half-truths lies.

Sid,

You claim that the CRA provisions were a non-issue. Unfortunately, you are incorrect.

You claim that CRA requirements have been the same for years but neglect to mention that HUD under Clinton passed a requirement that 50% of all Fannie/Freddie loans had to be to minorities.

You also fail to mention that ALL banks who desired access to the secondary markets were REQUIRED to comply with the standards set by F&F. In other words, the banks issue the mortgages and then resell them on the secondary markets to free up their money to issue more mortgages. In order to be able to sell that mortgage paper, the banks were forced to lower their standards.

Lowered standards for one group (minorities, etc) resulted in lowered standards for everyone because banks are not allowed to discriminate against borrowers by offering one group sweetheart deals and then deny the next group.

People that want to ignore the CRA, and the lowered standards (quotas) required by HUD, either have no grasp over the economic reality of the situation or they have no problem deluding themselves to promote a political agenda.

You point to various cities and states where the foreclosure issue is particularly prevalent. But you stop there. You don't carry your analysis the remainder of the way to discover how all those people were able to qualify for the loans on $500K houses.

You've done nothing to negate my point that lowered standards forced upon the banks were a key factor in getting this ball rolling.
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Don't forget the rating agencies. IMO they bear the most reponsability for the credit crisis, as well as others like Enron's.
We need viable, professional and independant ratings, so we'd know what is the risk attached to an investment.
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'ES
February 22nd, 2009 at 7:52 pm

Could Aye Chihuahua give us a visual representation of what he/she just wrote?"

I'd rather not have to look at pictures of scat, thanks. It's an all too common tactic to paint a situation as a single party's doing. Lest we forget the implications of the Gramm-Leach-Bliley Act and who was behind the S&L Scandal then that predeeded, but also directly served as a catalyst for, it.

Everyone, and I mean EVERYONE, had their hand caught in a cookie jar. Every. Step. Of. The. Way.

"Free market" greed coupled with Reaganomics economic policies... Or have people already forgotten about what the 'Ol Gypper did as well?

And the people of the United States, we voted them in.

Everyone is complicit. The people I knew who mocked me for living within my means... are the people who are suffering most now.
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Scottlass,

The loan officer has to fill out a VMI (voluntary monitoring information) form when one applies for a loan for their primary dwelling. If the loan officer does not have you fill out the form yourself then they will fill it out based on visual observation or based on surname (if done by phone). It has boxes for sex, ethnicity, race, marital status, and age. It is something congress wanted for statistical purposes.
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James M,

It’s an all too common tactic to paint a situation as a single party’s doing.

Gramm-Leach-Bliley Act and who was behind the S&L Scandal then that predeeded, but also directly served as a catalyst for, it.

“Free market” greed coupled with Reaganomics economic policies… Or have people already forgotten about what the ‘Ol Gypper did as well?

Pot. Kettle.

I have pointed to the facts of the issue. I have not named one party over the other. Just the facts.

You've failed to show how the CRA was NOT a factor while I have repeatedly shown that it was.

The "free market" didn't do this.

Banks were forced to make loans that normal business practices would have prohibited.

The interference of the Fed Gov't in the free market is what led to it.
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Chihuahua,
I really appreciate your comments, as a friend of mine was trying to illustrate how gov't requirements helped along this crisis, but he didn't have the facts to make it stand up. However, to say you have not named one party over the other is ridiculous, as you've pointed out Obama and his Administration and Chris Dodd as the culprits. If that's not naming the Democratic Party I don't know what is. (Not to mention "The interference of the Fed Gov’t in the free market is what led to it" is pretty much naked Republican ideology.)

Now, let's call it straight. The Free Market allowed redlining in the first place, and the gov't addressed it in the name of fairness and justice. The banks and other moneymongers figured out how to get rich off it, and then it all collapsed. The question remains, I guess, whether the banks and mortgage brokers would or would not have come up with the idea of Subprime Mortgages without gov't regulation. Honestly, did the gov't force lenders to give to unqualified applicants, or did they do it because there was money to be made?
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Trotter,

I pointed out Obama simply because he was the attorney for the group that sued the bank in the red lining case.

I mentioned Obama and Dodd because they were the number one and two recipients of campaign cash from Fannie/Freddie.

If the number one and two spots had been filled with Rep names then I would have named them instead.

The other names that I mentioned were former employees or board members of F&F.

I didn't mention their names due to party affiliation on their parts or party loyalty or mine.

To be honest, I despise both of these parties. I believe that they will be the death of this country.

I am simply laying out the facts. Nothing more. Nothing less.

Whether or not the bankers would have come up with sub-primes or some of the other "exotic" ideas is an issue that is subject to speculation.

What is not speculation is the fact that the Fed Gov't (specifically HUD) forced the lowering of qualification standards in the interest of social engineering.

Realistically, I don't see the banks willingly doing things to expose themselves to more risk.

By the way, here's a name I forgot to mention before.

Penny Pritzker.

She was the head of Superior Bank which collapsed in 2001 due to bad mortgages.

What's she doing now you ask?

Serving on Obama's economic advisory commission. She was also his campaign finance director.

Don't you all find it just a little bit disconcerting that the very hands that led us down the path we are now on are now occupying, or have access to, the halls of power and influence?

That's like asking the doctor who botched your surgery to operate on you again.
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Compared to the last administration, I'd say we're in good hands. The Bush administration was like asking a prayer healer who doesn't believe in surgery to operate on you.

I certainly cannot go point-for-point with you, as I'm no expert in these matters, but I believe that government regulations provide a framework for business, and a combination of ethical business practice and honest oversight is needed to make them work. I'm not saying that the regulation was written well, I just don't know about that, but I do know there was not much concern for honest oversight the last 8 years, and that led to a breakdown of ethical business practices, as everyone in the market has to follow suit to keep up with those gaming the system.

The thing I find interesting is how many people are "disconcerted" with the makeup of Obama's administration who were not at all disconcerted when Bush was putting the very people who lobbied against regulation in charge of upholding and defending those regulations in their various industries. Those who don't believe in government have no business running it.
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Gov't regulations have a place in business only to the extent that they prevent illegal activity, etc.

Gov't interference in the private markets lead to problems each and every time that they are tried.

I approach the Free Market in the same fashion that the Founding Fathers did. They believed that the gov'ts only role was to prevent monopolies and ensure competition.

Here's a NY Times article from 1999 which pointed out the problems which were already evident regarding this issue.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

You indicate that you feel that there was not sufficient oversight during the past eight years. I disagree. Too much oversight and gov't intervention is what forced the banks to make the bad loans.

President Bush made multiple attempts to reform F&F but each time his efforts were rebuffed by those in Congress who were blowing smoke about the stability of those two entities.

Again, there is no possible way that the people who led us into this tar pit should be the ones who are trusted to lead us out.

I appreciate you taking the time to discuss this issue with me in a rational fashion. So many people here aren't up to that task.
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That was a really precient article! It just about predicted the future 10 years ago.

We all know the old expression, "The road to hell is paved with good intentions." This appears to be the case here, as the goals of the regulations were admirable: extend home ownership to demographics that are currently underrepresented in that department. Why? Because home owners take more pride and care in their communities, which therefore leads to better cared-for neighborhoods and upward mobility for traditionally poorer Americans. Maybe it just makes sense in boom times like 1999 and it was bound to go bust.

However, I take umbrage with the statement that banks were "forced to make bad loans". Nowhere in the CRA or any other regulation does it say you need to loan to people that have no income. Nowhere does it say you need to loan a half-million dollars to someone that should only be borrowing $200K. Nowhere does it say that banks or mortgage broker should be pushing these ARMs that start at 4% and then skyrocket, or tell buyers that there will always be Refi opportunities so don't worry about signing for a mortgage that will be out of reach next year.

I don't think we're ever going to agree completely with one another, but we should agree that the banks and lenders are neither innocent nor victims of overregulation. I agree with you that hard quotas are usually a bad thing; guidelines tend to work better. But the banks took all sorts of risks that were not written into regulation because there was quick and dirty cash available. I won't say the gov't is absolved of their responsibility in this matter but I definitely won't say the banks are either.

It's been an enlightening conversation. Good talking with you too.
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Your readers might also like a couple of videos Enspire Learning produced last fall:

Understanding the Financial Crisis
http://www.youtube.com/watch?v=gF6LbFDjvW0

The Mortgage Banking Meltdown
http://www.youtube.com/watch?v=HSjEyOp2dEM
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I was obnoxious as a person expatiate how gov't needs help with the crisis, but to get the facts supported the Act. Balance is silly but more to say, you have a corporate soul-titled, as you have the barrel out montty as criminals and their drug and Chris Dodd. If the Republican organization denotive I do not cognise what to do.
polo
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When action goes acerbic, no seek, and tax payers are on the claw, label or concealed taxes equal inflation etc. Bankers eff way to bottomless supplying of liquidity (chewy money furnish), and we're all on the lure, time the banking cartel ensures profits for the banking elite
polo
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