A Visual Guide to the Financial Crisis
Almost overnight, the talking heads went from perpetuating the euphoria of investors to rushing to pronounce the economy dead. Last year, when lenders started dropping like flies as foreclosures rose and margins were called, the problems of Wall Street became more and more apparent, and lending guidelines were tightened to the point that many individuals were stuck in their time-bomb loans, and thus began a vicious cycle. But what led to this? Here is a visual guide to help you understand the events leading up to the bailout.
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These diagrams are about as good as it gets!
Thanks for the hard work.
Wow. Thus is really useful. Thanks!
This falls right in line with something else I was reading today in Portfolio: http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom
Wow, what a great image! I think I actually understand the crisis now!
Wow, what great images! I think I actually understand the causes of the crisis now!
Brilliant! Simply brilliant!
Very sweet visualizations
hi,
it’s a really great way to analyze what went wrong and where.
but here we need a solution ,
anyway it really good and easy to understand the whole thing through this.
Rather interesting to note this flow diagram from the start. Undoubtedly, it’s still government bailout.
Great job!!!! We can expect more bailouts and Obama will create another bubble - when it bursts, things will be worse than ever before. I blame the government and corrupted federal reserve. One day, maybe America will get a real leader who will abolish the fed…I hope.
Excellent analysis - makes it easier to understand for sure. I love how the President really only chimes in when it’s absolutely too late to really curb it.
“house prices never fall” that’s what we heard from the bank… I feel angry… they just lied to us
Great diagrams. What about the credit default swaps?
clear and understandable…
I like the last speech bubble
haha love it.. Any idea what software was used to make this flowchart?
A Visual Guide to the Financial Crisis | politikly.com…
\r\nAlmost overnight, the talking heads went from perpetuating the euphoria of investors to rushing…
Thanks for the hard work!
These diagrams are great but you forgot one of the most important parts. The investment firms didn’t make subprime mortgages for homeowners, they made them to satisfy the global pool of money looking to invest when Greenspan shut down investment in US paper by lowering the prime.
There was another large variable in the first chart which was the larger financial institutions and countries who eventually ended up with the CDOs. Those are the entities who started the panic when they stopped buying smelling something fishy and this left the middle men (Morgan Stanley, etc.) holding a lot of CDOs they had borrowed money to buy and now could not sell.
Listen to this piece, it’s still one of the best descriptions of the initial problem I’ve heard:
http://www.thislife.org/Radio_Episode.aspx?sched=1242
Very nice illustration…
That was simply phenomenal! I’m mailing links to my family.
This is one of those times I can really say “Pictures speak louder than words.” Good work Mint.
Best representation I’ve seen.
These diagrams are awesome!
One thing though, one of the “bottlenecks” is “Overbuilding of homes” and the rest of the bottom diagram relies on that.
That might be true in the US, but property prices are going down sharply here in the UK too but overbuilding did not occur. In fact, it was a major lack of building due to strict planning laws that caused the property price rises in the first place. As recently as three months ago, the British government was banging on about how we need to keep building more homes to satisfy demand.
It seems, however, that demand to own a home has now slumped not because people don’t want to own one, but because people are scared of the risk involved - so they’ll live with their extended family / parents / whatever for longer yet instead.
I’ve ripped on this blog for some questionable work…
But this is truly excellent!
In fact, this is what the average investor needs to see. Almost everyone can understand the problem via this graphic.
Meanwhile, the strength of the dollar eroded through the “get into trouble” phase of this (loose money supply and a lot of debt tends to do that) and has gotten much stronger since the bailout package was passed. We’re talking about 3 year strong highs against the Euro and 5+ year strengths against the GBP.
Money supply down, but purch power is up. I wonder how bad the economy really is now that the housing bubble has mostly popped and forced the US into a more rational monetary policy.
Thanks concise and clear
This ranks up there with the stick-figure slide presentation explaining how the CDOs were created and gamed (http://docs.google.com/TeamPresent?revision=_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true). Nice work.
mmm juicy flow. Nice layout. Once I looked at these images I got very sad. All of this was created by greed, lack of controls and governmental collusion.
We have a nation full of bright and talented individuals who are all just fighting for themselves. The bright future is that we don’t have to stay that way.
Just one minor issue: CDOs don’t only contain bad loans. That’s the whole point. They consist of mortgages bucketed into risk tranches, which are then sold at various prices. The problem is that risk is relative and if the whole economy sours, even those who look relatively likely to payback will probably default.
I realize that you probably had to be reductive for explanatory purposes, but still.
This diagram does not take into account credit default swaps, and their lack of regulation, which was one of the major factors other than housing in this financial crisis.
People bought the wrong way in the wrong markets. I used “equity” from my house during the last in South Florida to buy 10 other houses in upstate NY. I’ve lost $0 equity on the investments and could care less about the equity on the house in Florida. Rents pay the carrying costs and provide healthy positive cash flow. Now that things are low, I’m surviving because I put the equity “overflow” in the healthy assets.
awesome visual! im emailing it to all my friends
You missed one key step - Federal Reserve “pumping up” the markets with cash injections and lowered interest rates, contributing to the bubble growth. Ah, easy money.
Awesome visual! Hello Ron Paul supporters and diggers.
You forgot President Clinton appointing Franklin Raines,lowering the requirements to qualify for mortgage loansand the cooking of the books at freddie mac.
Look who recieved the most “campaign contributions” from freddie mac to look the other way while our economy was raped.
It’s ok though,the very people who profited are going to fix it now.
Excellent way to communicate a complex concept. Hopefully we won’t need to add the boxes that logic says come next!
A box “Goverment guarentees debts” ….
A loop: “Debts default / US government defict rises / Goverment needs to sell more bonds / Interest rates rise” …
A path out of the loop “Investors lose confidence in US bonds” …
A box: Government prints paper …
A box: Dollar becomes worthless!
Excellent graphic easy to understand. Neither the graphic nor commentators picked up on a very important issue. That is the cost and financing of the Iraq war and the effect it had on the then rising price of oil and it’s subsequent impact on the overall economy and housing market
By borrowing the money to finance the war and pay for the Bush tax cuts to the wealthiest 5 percent of Americans the increased pressure on the dollar drove it downwards vs the Euro and major Asian currencies. Oil markets seeing the falling value of the dollar eroding their real income raised prices to compensate. Oil went from 29 dollars per barrel when Bush came to office to over 140 dollars per barrel before falling back in the current downturn. This put huge pressure on every facet of the economy from corporations to single families to students. In simplistic terms this did three things that contributed to the housing and credit crisis.
1. The rising cost of oil contributed to the rising cost of production and transportation of everything. From fertilizer, storage, transportation, processing and packaging of agricultural products to mining, processing, transportation, fabrication, packaging shipping, warehousing and distribution of the end product. In industries where applicable the industry and accompanying jobs were shipped overseas to lower labor cost countries , China for example. When that wasn’t a feasible option producers tried to lower cost by trimming the workforce or not hiring new employees. The net result for the economy overall was a net loss or stagnation of jobs and higher prices for everything that used or relied oil or energy created from oil products. The most visible manifestation was the 4+ dollar a gallon gasoline, however the less visible cost were just as damaging if not more so to the economy.
2.The increased cost of goods and services for the consumer compounded with a stagnant or net loss of income and purchasing power forced more and more people to rely on credit cards for day to day purchases. This meant that consumer debt skyrocketed and personal savings plunged during this period. As the economy got deeper into this cycle consumers were finding harder to cover all of their obligations of mortgage payments, credit card debt, and rising transportation, food, utilities and heating bills. For those that lost their good paying factory jobs finding new jobs with similar or even adequate compensation became more and more an exercise in frustration. These two scenarios contributed to above nominal delinquency rates on mortgages. Mortgages were hit first because they tend to be the largest indivisible non-negotiable cash obligation that consumers have(Have you ever tried renegotiating your payment terms with a bank?). The next wave of defaults will be credit card debt and this is starting to rear it’s menacing head now.
3.The SUV rage and housing construction boom led to more people in larger gas guzzling vehicles driving more often and longer distances leading to substantially increased gasoline consumption and importation. This coupled with the higher price of oil products, and an increase in the percentage of total oil consumption imported meant that on the average the U.S. was sending approximately $800 billion out of the country each year to pay for gasoline and petroleum products. While this figures varies from source to source it is never less than $600 billion per year which since the start of the Iraq war in 2003. This is $3.3 to 4.4 trillion taken out of our economy in five and a half years. On top of that is the $10+ billion dollars per month direct cost of the Iraq war and the growing Federal budget deficit. Of that $3.3 to 4.4 trillion at least 70% should have stayed in the U.S., oil is not free and some moderate price increase was to be expected but not the five-hundred percent increase through the summer of 2008. Had that $2.3 to 3.1 trillion stayed in our economy it would have manifested itself in reduced credit card debt, increased savings and generally circulated through the economy and banks providing cash liquidity. It is the lack of this cash liquidity in the private sector that necessitated the government intervention.
These factors combined to push up the mortgage default rate higher than what it would have been had oil prices not gone through the roof.
If you’re looking for more cartoon detail on the CDOs:
http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1
Be warned that the dialog in the captions is quite realistic!
chris russell is right. The only mention of Fannie Mae and Freddie Mac in these diagrams is when they were bailed out by the government. Yet they played a significant role as the largest “guarantor” of all these bad loans that were being made, hence their need for the government bailout. Why isn’t the role they played more accurately captured here? Not to mention the failure of oversight for these government backed institutuions by the very politicians who were responsible for doing so (B. Frank, C. Dodd., et al.).
Where are Freddie Mac and Fannie Mae in your diagram?
You missed a nice quote you might want to include, “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Rep. Barney Frank, then ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
How about this John McCain quote too, “If Congress does not act,” McCain said in 2005, “American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole.”
I would go on, but you surely realize your diagram is incomplete.
Looks like you need to flesh out the picture a bit more.
Great visual. Nice Presentation.
Excellent diagrams, right on!!!
Really like your site, the use of the flow diags is very powerful and makes it much easier to understand
Where does this mention the easing of lending rules by a Democratic Congress in 1994 that allowed people to buy homes that wouldn’t have qualified for a mortgage otherwise?
Where does this mention President Clinton having HUD rewrite the rules for Fannie Mae and Freddie Mac to let them get involved in the subprime market for the first time ever?
Where does this mention Fannie Mae and Freddie Mac then buying subprime mortgages at breakneck speeds? $18.6 billion that year, which ballooned up to $175 billion by 2004.
What software did you use to make this chart?
Looks like Greenspan should re-read some Austrian Economics.
awesome..
awesome..
awesome..
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privatization of profits and the socialization of losses.
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The key part missing from that. Which is the one detail holding the entire thing together.
“Secure AAA and BBB bond ratings using financial wizardry.”
That’s way too vague.
The real answer is “Unregulated Credit Default Swaps”.
Which are “Loan Failure Insurance Policies”, which allow you to claim that even the most risky loans, have ZERO risk.
Since if the loans fail, then you have the CDS’s money-back-guarantee.
Catch being that the CDS’s, unlike all other forms of insurance, weren’t required to charge/set-asside enough money to make those CDS’s realistic.
And they didn’t.
So when a bunch of extremely high risk loans began to fail, and the banks offering CDS’s were asked to pay-out. There wasn’t anywhere near enough money there.
So the banks filed bankruptcy; And now we’re bailing them out.
_
All of this, of course, created by a bill slipped into an omnibus budget bill, in the dead of night, with zero debate, on the LAST day of congress, just before George Bush.
And the author of that bill? John McCain’s senior economic adviser, former Senator Phil Gramm.
http://www.marketwatch.com/news/story/greenspan-says-credit-default-swaps-have/story.aspx?guid={5BE2099F-0D47-4A2D-B19D-57DEB9B41F96}
http://trueconservative.typepad.com/trueconservative/2008/10/the-problem-was-not-deregulating-the-problem-was-not-regulating.html
____
It’s actually kind of sad that any chart really trying to educate people on this subject doesn’t include Credit Default Swaps.
near the top of the graphic, couldn’t you changed “historically low interest rates” to “artificially low interest rates?”
This is what Ron Paul always addresses. He makes a lot of sense.
omg!!! amazing! you qualify for a job in Obama’s Administration? ^_^
http://shoppingoak.com/freebies
This chart sums it up all well and nice. makes sense to even dummies.
I love the quotes placed throughout the diagram. They really help to give each event additional context - especially good ol’ Bush’s at the bottom. What a joke!
That is so clear and understandable. Great, no, fantastic job. I liked how you included how the media was supporting the overconfidence in buying a home as an investment.
@chris russell
It’s okay bitter Chris. You lost. You’ll get over it. You, Chris, seem to have forgotten that a president has been in office for 8 years since Clinton. I wonder if you could tell us who that is? Oh, but no, he didn’t have anything to do with this.
Very good concept albeit oversimplified - no mention of legalization of derivatives (2004), absence of dialogue concerning oversight and transparency not stressed, etc. Good effort none the less.
Where was the fed when I was getting creamed in the “tech bubble”? That is when I finally saw the market as it is, not free but manipulated by those who have the rules in their favor. This diagram can’t describe the complete failure of moral capitalism. The market takes care of itself. We continue to invest as though the rules are there to keep things transparent and fair, they are not.
And now as final note, 290 billion dollars are now gone from the treasury, and the same people who screwed us are lining up at the trough. If al Queda had done this we would bomb then into the Stone Age. This is a total failure of this system. It is our fault, because we care more about bullshit tha nthe running of this country. There ar voices out there in the wilderness who have been yelling at the tops of their lungs that this was coming since 2001. But they were marginalized as anti-captialists,worry warts, party crashers. Stop pointing fingers and act on what is happening now. Save our treasury first, then we will figure who gets saved after that. If that means the government shuts off the spigot, so be it. Let the heavens fall.
So, this visualization is interesting, but it’s very misleading to omit credit default swaps. If the only problem were bad mortgages, the worst of them could be bought up for a few hundred billion, end of problem. But we’ve already paid out $700 billion, and we’re still in deep weeds.
Credit default swaps, on the other hand, are estimated at $45-65 trillion dollars, and are completely unregulated. While it’s easier to blame all our troubles on bad behavior that we can understand (house flippers, real estate industry advocates, people who bought a house they couldn’t afford), the real damage was done by a huge amount of unregulated trade.
What I want to see is heads rolling, consequences, instead all we get are golden parachutes
love these sites which reduce it such simple visuals.. i track “job cuts” across the world here http://www.trackthisnow.com
it tracks all the countries and all the cities in all the countries
Great easy to understand explanation, thank you. I note another reader’s comments about credit default swaps - I think I can see where they fit in. Either way, most of the problem is due to the lack of coherent & forward thinking financial regulation by the US & UK govts over the last 10+ years. We (the British) have been stupid enough to be conned into a spend, spend, spend lifestyle by our government (James Gordon Brown) - who actually has no financial nous at all & who has failed to save in the good years for any possible bad years. I read somewhere that the last time he actually balanced a budget was in 2002. Some leader huh?
Great graphic. Effectively designing information is always a huge challenge.
Only major thing I would say it misses is the SEC’s 2004 decision to change net capital requirements for the big 5 that led Bear Stearns, Lehman etc to become so over leveraged (30 -to- 1 instead of 12 -to- 1) that a significant decrease in their mortgage backed securities flipped the banks balance sheets and drove them into bankruptcy.
Could also touch on credit default swaps, and how exposure to mortgage backed securities dropped their credit rating thus requiring greater margins which then expended their available capital (a la AIG) which then leads to mark downs of these un-insured assets throughout other banks & institutional investors.
Beautiful diagram!
Unfortunately, it has a political blind spot in its exclusion of the promotion of home ownership by financially underqualified individuals.
I think this is captured in the diagram, but just want to check. . .
It’s my understanding that, at least part of what drove this vicious cycle, was the fact that the people who approved the loans, weren’t the people who ended up with the risk for the loans. That is, in the chart, you have the Mortgage Brokers (who, I think, basically approve the loans, but aren’t lending their own money, and who got payed a commission on each loan ’sold’, so that their chief incentive was to sell as many loans, for as much money as possible, and for whom there was no personal risk in ’selling’ loans to people who couldn’t afford them?) setting up the loans, the banks lending the money, but then turning around and selling off the loans as the CDO’s mentioned in the diagram, so that the ultimate people holding the bag aren’t the people who are approving the loans?
So, you have a perfect system setup to encourage the writing of bad loans.
Nestor: What I want to see is heads rolling, consequences, instead all we get are golden parachutes.
I know, $700B = $2,300 for each US resident (305M). And it definitely sounds like a golden parachute. However, the Debt Clock has each citizen owing $35,000 to the national debt. But that only lists, the US debt at 10.6 Trillion. A quick search reveals that the real number (based on government promises) is closer to 52 Trillion. That’s 5 times the reported number, which means that each citizen owes about $175,000 on the National Debt (in today’s dollars). Of course, the government may not have to make good on all of its promises, so the real number is likely somewhere in between.
But in the grand scheme of things, the bailout is like a drop in the bucket. You’re talking like 2% of the existing debt load.
Of course, I’m not really sure what’s scarier. The fact that it’s not really a golden parachute or the fact that that much money is almost irrelevant
thanks alot i’ll keep this in mind
The key thing missing:
DEREGULATION AND THE NEO-CON, REPUBLICAN AGENDA CAUSED ALL OF THE ABOVE TO BE POSSIBLE.
Read: The Shock Doctrine, this was the plan to steal our money.
This is a great job. Many have said we’re missing the Credit Default Swaps and the Collateral Debt Obligations that were created from Synthetic CDOs. These are important because they allowed the described effect to be amplified many more times than the total sum of all these mortgages. If it were only the total value of the mortgages originated by banks, we’d still be in trouble but now with the amplification of these complex derivatives, we are in a hole so deep, we may never get out.
Awesome work.
Wow very nice! Its obvious that you have put a lot of work into this chart.
-Will
http://www.allthebestofthenet.com
Good illustration; however two important fuels left out (as if any more were necessary). The profitability of these loans was all structured as up-front fees other than the final holder who had 6 degrees of separation from the one most knowledgeable about the collateral. This incentive driven madness includes the mortgage originators, the CDO traders, construction lenders and all their employers. There was no risk retained by those charged with underwriting and originating the permanent financing. Therefore there were huge fee incentives to originate as much as possible as quickly as possible with little regard for the risk involved. That naturally led to misleading numbers and applications often times by sales lenders rather than experienced bankers.
Also, as someone mentioned above, the influx of foreign capital was a never before seen fuel to our economy that we need to better understand because of how it affects our economic demand.
Lastly, Graham Green, your ignorance is what makes you angry not those whom you blame, so read a little and stop watching so much TV.
Grash -
I don’t watch TV. I don’t even get TV in my home!
As I said, READ “The Shock Doctrine” by Naomi Klien.
This is a continuing ongoing scam by the Uber-rich - the 2,000 people who have 50% of the wealth in the world, to con money out of the rest of us.
The NEW NARRATIVE, THE FRAMING that the ULTRA RIGHT-WING would have you believe, is that it was the something other than de-regulation that caused this, which is not true. Their narrative continues further, to blame the victims of this disaster - ie, that those who were conned into taking out these loans. But NONE OF THIS WOULD HAVE HAPPENED IF THE BANKING INDUSTRY HADN’T FORCED THE DEREGULATION THAT LED TO THIS COLLAPSE. That should be item 1 in this chart.
Terrible diagram. A pink box is always a quote, but what’s a green box? It can be an event, a command, an action, a status, a player, a question… just about anything. Some of the green boxes contain quotes, so why were they not put in pink boxes? The green arrows aren’t much better. Sometimes they represent simultaneous paths, other times alternative paths.
This isn’t a flowchart or model. This is a bunch of sentences with a lot of words deleted (like ‘then’ and ‘because’), and the remaining words dressed up in flowchart graphics.
This is a fantastic website!
Really fine analysis of the current economic slow down and market slump. Good work keep it up…
nice, I am going to send this to some of my students. thanks.
Great work, very informative…thanks…
Very good. But it’s too bad you chose to make it partisan. I see a few Republicans, but I didn’t see Rep. Barney Frank, the ranking Democrat on the House Financial Services Committees push-back against more Fannie Mae and Freddie Mac reform anywhere on your chart. He had some rather outrageously wrong comments along these lines a couple of years ago. Indeed, I see nowhere on your chart that Democrats in Congress actually pushed banks to make riskier home loans or face penalties, in the name of “affordable housing.” Are you contending that didn’t contribute to what happened?
I already knew this overview of the financial crisis but this has helped clarify and reassert it. It is an incredible diagram. Kudos to those that designed and executed it. They certainly have skill.
Alternative visualization:
GREED
Nice work but you’ve left out a lot in the causation department (e.g., Community Reinvestment Act)
Great diagram. I would add (at the very top) investment cash from Asian. According to the recent article by Naill Ferguson in VF, this was a major contributing factor. They wanted to invest all that extra cash in any/everything.
One other missing element: the bubble in oil prices, which led to higher unemployment and higher numbers of people defaulting on home loans which were bundled into thos securities…. and you know the rest.
YOU LEFT OUT THE ORIGINAL SIN:
DE-REGULATION
…which allowed all of this to happen.
As Usual,
Americans do everything all from their own perspective. This is a global crisis. And unfortunately this website, Mint.com, only allows American users. If anyone from Canada is looking for a free option to mint, email me. I use http://www.themoneycase.com and find it useful.
Nina
Funny. Our artist is Canadian as are several of us at Mint.
thanks for the hard work, that was really helpfull
Great summary and flow chart. I agree, it could be expanded to include deregulation as a prelude, and greed as a prelude to that, and DENIAL belongs in there somewhere (perhaps as a tag to some of the quotes).
DEREGULATION? Can any of these deregulation nay-sayers cite a single example of any relevant deregulation in the last 25 years? No they can’t, because there was none! Please, Graham or Steve, cite a single solitary example of relevant deregulation.
Meanwhile, *highly-regulated* institutions bought risky mortgages which created an unsustainable price bubble. And it was so-called regulation that allowed them to do so in the first place!
When in doubt, just throw much government at a problem — That’ll fix it!
Marshall,
Thank you for the challenge!
OK, here are two of the relevant bills.
1) “The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999, is an Act of the United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies.
The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.
The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. ”
In a nutshell, this allowed the banks to monopolize, destroy competition, set outrageous fees, and interest rates on their products, etc….
2) “The Commodity Futures Modernization Act of 2000 or CFMA (H.R. 5660 and S.3283) is United States federal legislation which repealed the Shad-Johnson jurisdictional accord, which had banned single-stock futures in 1982. The legislation also provided certainty that products offered by banking institutions would not be regulated as futures contracts.”
This allowed the sale of Credit Default Swaps - a fancy financial con game.
“Warren Buffett famously described derivatives bought speculatively as “financial weapons of mass destruction.” In Berkshire Hathaway’s annual report to shareholders in 2002, he said, “Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses—often huge in amount—in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen).”
And so poof - They blew up the world’s economy.
THERE IS NO SUCH THING AS A FREE MARKET!
ALL MARKETS HAVE RULES AND REGULATIONS.
OTHERWISE IT’S ANARCHY.
HERE ARE THE SOLUTIONS:
Repeal the above acts.
End the WTO and FTA.
Increase wages across the board. (This is key - it is well paid workers who create the demand for products, goods, and services that drives all economies)
Limit CEO/mgmt pay.
Fire the CEO’s and managers who developed this house of cards.
Break up the large financial institutions that are destroying the world’s economy.
That’s all for now.
Please let me know if I can be of further assistance!
It would be great to have a Spanish version of this graph, it’s really good and clear.
Great diagrams. I’ll sign up for Mint this weekend. Why does Bernanke still have a job? You should have used the better Bush quote — “This sucker’s going down.”
This is an interesting read and covers ground not illustrated above.
The Hilarious History of the Financial Crisis in Quotes
http://directorblue.blogspot.com/2008/12/hilarious-quotes-from-financial-crisis.html
If Congress can bring itself to overcome the furious political opposition of the GSEs and their supporters, [it will] reduce the size of Fannie’s and Freddie’s portfolios [and reduce the] massive risks for the taxpayers and the economy in general… If Congress cannot take this essential step… Fannie and Freddie will continue to grow, and one day… there will be a massive default with huge losses to the taxpayers and systemic effects on the economy…”
— Regulating Fannie Mae and Freddie Mac, 5/13/2005, Peter J. Wallison, The American Enterprise Institute
What follows is a select group of quotations, in roughly chronological order, illustrating the interplay between Republicans and Democrats regarding the regulation of Fannie Mae and Freddie Mac.
• “We manage our political risk with the same intensity that we manage our credit and interest rate risks.” — Fannie Mae CEO Franklin Raines, 1999.
• “[The size of the two GSEs (Fannie Mae and Freddie Mac) is "a potential problem [because] financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.” — Fiscal Year 2002 Proposed Budget, Pres. George W. Bush, 4/2001
• “[A]lthough investors perceive an implicit Federal guarantee of [GSE] obligations … the government has provided no explicit legal backing for them… As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market.” — The Bush Administration’s Office of Federal Housing Enterprise Oversight (OFHEO), “Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03.
Its a shame your diagram is so one-sided, and so shallow. It’s pretty though. I think it will take another generation of historians with no political axe to grind to get to the real truth. q is right, this problem started in the mid-90’s with the push for “affordable Housing”. The de-regulation happened then. As early as 2001 the Bush administration started warning about the risks of Fannie Mae pushing for more subprime loans and securitizing more of them. During the first half of 2008 the administration warned no less than 17 times. The dirty little secret is that the GSE oversight committee (mostly Dems), has stonewalled any meaningful regulation for all these years. What I want to see is the money trail…Barney Frank’s ex was on the Board of one of the GSE’s, Franklin Raines and the absurd 90 million in bonuses for meeting quotas that HE himself set up. Oh…its dirty. I just think we’re going to have to wait for the truth to out.
One of the big lies that people have bought into is that Republicans want NO regulation…bad, Dems want regulation…good. Just think of the absurdity of that… Come-on, idealogues, think a little deeper, I know you have it in you!
definitely. what a helpful visual guide to the leading up to and snapshot of the financial situation. thank you for putting this together.
Need to add Madoff crisis to the chart and it is Orange “County” not Orange “Country” in Gary Watt’s quote (unless you are alluding to Northern Ireland!)
This a great graphic that illustrates how we got here. For more facts and to learn what you can do to help, go to FixHousing First.com . The National Association of Home Builders has put together a new housing stimulus plan that could really make a difference.
Great graphics & visualization. Interesting blog, article and comments. Keep up the good work!
What a well build visual presentation. You covered it all.
Some one rightly commented. The next time bomb in the financial crisis series is Credit Default Swaps. What else can you call the so called Credit Default Swaps on Fixed income securities - when the total bond size is 25 trillion USD and the notional value of CDS is 63 trillion USD? Do you call this protection or pure gambling? Let the regulators do something for this before it is too late.
Lovely post and excellent presentation. Let us hope we come out of all this mess at the soonest. During Great Depression several hundred banks closed shop - this time around the investment bank as a class is wiped out.