That's missing the first part. This crisis didn't start with housing. The real problem is that in order to maintain growth, we had to increase consumption at a faster rate than incomes were going up. The only way to do that was by borrowing money. The Chinese and other exporters were willing to lend money to anyone who would buy their products so that they could achieve faster growth. The banks got nervous about giving out such huge unsecured loans. But then they realized that they could get houses appraised at higher values and then the loans were secured. And since the house actually sold at the appraisal value, it clearly wasn't actually overappraised. The banks just had to keep coming up with more creative ways of financing larger loans with the same monthly payment.
It all worked as long as nobody asked how much the houses were actually worth. And as long as the banks could invent ways to keep the monthly payments the same while increasing the mortgage amounts. But eventually even creative financing and lying about incomes didn't go far enough to keep pushing house prices higher. And then the whole Ponzi scheme was revealed for what it was.
This part is very important, because until the income issue is addressed, this depression can't end. But the politicians are focussing on house prices as though they can somehow force them back up, when raising house prices won't actually help fix things (and probably can't be done anyway).
Nice visualization. It does lack few things but if it had to count every single cause of the crisis in it it would be a looooot longer. I've also seen a very good video explaining this crisis, you can view it here: http://vimeo.com/3261363 . Anyways, thanks for the post.
The Financial Ninja is a collection of my thoughts and opinions about current economic and market conditions. These are not buy and sell recommendations. Use your head and do your own research. This is a forum to stimulate discussion and debate.
I started trading during the tech bubble when I was still in high school. My trading has financed my education and I have since completed a BA in Economics and an MBA with a concentration in Finance. I have worked as both a proprietary equity and fixed income derivatives trader.
[ HT Visual Guide to the Finacnial Crisis ] 
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That's missing the first part. This crisis didn't start with housing. The real problem is that in order to maintain growth, we had to increase consumption at a faster rate than incomes were going up. The only way to do that was by borrowing money. The Chinese and other exporters were willing to lend money to anyone who would buy their products so that they could achieve faster growth. The banks got nervous about giving out such huge unsecured loans. But then they realized that they could get houses appraised at higher values and then the loans were secured. And since the house actually sold at the appraisal value, it clearly wasn't actually overappraised. The banks just had to keep coming up with more creative ways of financing larger loans with the same monthly payment.
It all worked as long as nobody asked how much the houses were actually worth. And as long as the banks could invent ways to keep the monthly payments the same while increasing the mortgage amounts. But eventually even creative financing and lying about incomes didn't go far enough to keep pushing house prices higher. And then the whole Ponzi scheme was revealed for what it was.
This part is very important, because until the income issue is addressed, this depression can't end. But the politicians are focussing on house prices as though they can somehow force them back up, when raising house prices won't actually help fix things (and probably can't be done anyway).
jkw
@ Feanen,
Agreed.
Nice visualization. It does lack few things but if it had to count every single cause of the crisis in it it would be a looooot longer. I've also seen a very good video explaining this crisis, you can view it here: http://vimeo.com/3261363 . Anyways, thanks for the post.
Take care, Jay
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