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Monday, March 16, 2009

Visual Guide of the Financial Crisis

[ HT Visual Guide to the Finacnial Crisis ]


Click image to enlarge.

3 comments:

Feanen said...

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

Ben Bittrolff said...

@ Feanen,

Agreed.

Real Estate Agent in Vancouver said...

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