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I guess we were all quite impressed with the animated infographic "The Crisis of Credit Visualized. But it is still nice to see some competition in the form of "Understanding the Financial Crisis" and "The Mortgage Banking Meltdown", two movies in the same infographic style. For kids, there is "Understanding The Financial Crisis--For Kids and Grownups". For those that love a simple 3D graphs fly-through, there is always "The Subprime Crisis Explained".

Watch all four videos below.

Partly via Prudent Investing.



The one thing none of the videos do a good job of explaining is why all of a sudden all these mortgages started defaulting. For 60 years almost no one defaulted on a mortgage and then all of a sudden they do?

The real root of the problem was a combination of over investing in mortgages (giving out too many to people that were too risky). Why would a bank do something so obviously stupid?

Because of Fannie Mae and Freddie Mac banks always operated under the assumption that they could always unload defaulting mortgages to these government backed institutions. If you can always take the cash and then unload the junk why wouldn't you?

It isn't even that the companies foisted these loans on an unwilling government either. In the name of "affordable housing" the government basically demanded that banks lend to low income/high risk borrowers, essentially guaranteeing a housing bubble an bust.

It is that part of the cycle that people seem to have amnesia about but it is absolutely crucial to understanding why these toxic assets came to be in the first place. Perhaps it is because no one wants to say "you are too poor to own a house" or it is too political? However, it is crucial to understanding the problem.

Fri 15 May 2009 at 2:05 AM

Actually AF, you're arguing against yourself there.

You criticize the videos for not explaining why all of a sudden the mortgages went south, and then offer up an argument that in no way explains why they suddenly went south. You do realize Fannie and Freddie have been around for decades, right? That the government has similarly been encouraging homeownership for decades as well?

Actually the videos do explain why the suddenly went south, explaining the increase in mortgage brokers separating banks from lenders, they highlighted the legal changes that reduced the risk to these brokers that would result from a defaulting lender, as well as the explosion in securitization that further separated the lender from the lendee and increased the difficulty of accurately valuing these loans. They covered how the sudden increases in interest rates that followed very low initial rates caused many inexperienced lenders to default, as well as explained the voracious appetite that the banks had for these profitable and "safe" mortages that kept the brokers working to sell as many as they could.

The videos were pretty darn good actually. Simple, yes. But certainly more substantial than your empty explanation.

Sat 16 May 2009 at 3:20 AM

Very cool graphic novel stories.
There is more information to plot. More interesting would be animations showing the timelines of court cases since 2004 plotted against volumes and also creation of all those crazy mortgage types they came up with. The court cases basically exonerated investment banks for the lending and underwriting practices of the lenders and underwriters they enabled with their money, and set the case law legal precedence for all future cases against the players in these supply-chains.

Once they saw the paltry fines they would have to pay as precedence in the courts, they could turn up the gas on throwing money into the system knowing they wouldn't take too much of a legal liability hit.

They even went so far as to set up new lenders to get to more of the kinds of higher yield sub-prime borrowers who gave them the most profits.

A court case in SF CA around 2004 basically looks like it could be an 'attractor factor' in the thermodynamics of this whole crisis. Stuff like that , as well as Congressional rulings, etc is what to look for, and plot out visually...to see what really happened.

Never mind on the demand side, the issues that came up with distributing the paper to institutions all over the world. That is also an important part of the story, why the banks were left holding the bag they created but didn't manage to get handed off to enough suckers! Journalists and plenty of court cases are showing up on that side, but that isn't for consumer protection so much, more for institutional investor protection, and retribution.

Thu 21 May 2009 at 7:49 AM
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