Visual Guide to the Financial Crisis

Posted to Infographics

If you're like most people, you don't really know what's going on with the economy. You know there's something to do with loans and payments and what not, but not much else. Mint (the financial management app) and Wallstats (the guy who does the Death and Taxes poster) put together a "visual guide to the financial crisis" - or a flow chart, rather - to clear up some of those cloudy details. It goes back to 2003 after the dot-com crash up to the recent government bailout.

[Thanks, Max]

58 Comments

  • I would totally buy that poster and hang it on my cube.

  • The WallStats guy’s name is Jess Bachman. He also has a blog, though he doesn’t post much – but what he does is very good.

  • We need more of these visual (easy) explanations of these typically complicated topics, especially regarding macro economic issues.

    The above poster is a good start, but fails to contextualize many of the one-liners and many policies that poisoned the waters.

    Most importantly it fails to back up to the late 90’s when Freddie Mac and Fannie Mae are mandated to loosen lending standards for the “common good.” (not to mention free get out jail passes from Congress) Enter the era of “sub-prime” lending.

    This is, I believe, one of THE keys to fully understand the role policies the government has played. Of course, they don’t want you to know.

    It also glosses over the significant role derivatives and transaction based business models played. Some of those were employed to prop up Wall Street post-9/11. Decent intentions, bad implementation and outcome. Greenspan recently admitted to underestimating that individual greed could undermine “bank’s self regulation.”

    This collapse and bailout is a bailout of a failed bet on mandating sub-prime lending and their over-reaching into private lending (Freddie and Fannie). We’re left with the mess. Of course no one forced us to accept loans that we couldn’t afford too. Plenty of blame to go around.

    The naiveté of buying on credit is hopefully behind us. It will take individual fortitude, gumption, and a little more discipline to get out of this mess.

    Anything to helps explain that would be ideal.
    We’ll see what team Obama has in store.

  • This is awesome. It really did help to see the overall picture.

  • The flow chart is very good. The title is pretty poor in comparison and looks like something out of MS Word’s WordArt.

  • I like the retro look

  • Can I get a high res version please. I will definitely stick it on the wall.

  • I love it:-)

    Do you think a similar story board could be hang up in the midst of the cafeteria of GM or any other automobile company?

    This would truely open some eyes;-))

    Cheers,

    Ralf

  • I just say “wow”!

  • hi

    can i translate it into greek and use it with attribution?

    thanks

    Andreas Triantafillidis

  • Pretty much sum’s it up!

    Great post!

  • Wow thanks, i just learned alot. ^_^

  • Nice chart.

    Now someone needs to continue it to show this:

    http://djomama.blogspot.com/2006/12/first-world-government-junk-bonds-on.html

    At the bottom it would read:

    World-wide Economic, Political, and Social Collapse

  • Brilliant, I’ll link to it later (not tonight). I appreciate the work.

  • That is too cool! I think it made me dizzy, but it’s right on the money.

  • @james and off topic – What “mandate” for subprime loans are you referring to? Fannie and Freddie sold mortgage backed securities as far back as the 1970’s, but not on subprime loans. They had none.

    In the 1990s, unregulated investment banks started selling their own mortgage backed securities packaged with subprime loans. It is these mixed sets of securities that could not fit into risk models that set off the subprime crisis.

    In recent years, Fannie and Freddie did buy mortgage-backed securities from investment banks, but never directly bought sub-prime mortages from banks and other originators. They bought into the whole idea that these securities were appropriately rated for their risk.

    OK, enough off topic, go here http://www.dollarsandsense.org/archives/2008/0908moseley.html and a lot of other places for more.

  • This is so well put and easy to understand. thanks to whoever made it. it’s really gonna help me in my term paper. :)

  • He should have added in the info about how Bush tried to fix it FIVE years ago and how the Democrats fought it.
    See “Root Cause”
    http://directorblue.blogspot.com/2008/09/root-cause.html

    …and the NY Times article in 2003:
    http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

    An excerpt: “The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.”

    “Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.”

    “The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.”

    “The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.”

    “‘There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,’ Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.”

    “‘These irregularities, which have been going on for several years, should have been detected earlier by the regulator,’ he added.”

  • Interesting.Thanks!

  • I like the look,too.Thank you!

  • Excellent. I really like it.

  • I am interested to know if people feel that “securitization” was a major contributing factor here? For example, when the Gramm Leach Bliley Act passed in ’99 didn’t it break the firewall between commercial and investment banks? And this in turn made the banks not feel “responsible” for the loans they were making because they were packaging them and selling them off. I realize we had a LOT of contributing factors to this crisis, but it seems to me if banks had to hold every loan on the books, they would not have gotten so “crazy” with the toxic financing they were pushing.

    And by the way, ALL buyers in ALL income brackets were sold on loans they could not afford here, it was not just subprime. The first loan officer (a “mortgage broker” for the bank) I spoke to ONLY offered five various ARMs which we rejected and went to our credit union for the final loan. We got a prime fixed 15% loan and were actually approved for over twice what we felt we could really “afford” on our income (didn’t take it). Everyone was put into the highest $$ house they could afford. That was all part of the “housing never goes down” myth. All assumptions were based on this fanciful untruth.

  • ^^
    sorry in my above post that should’ve said “fixed 15-year”

  • I’d give this chart 3 thumbs up if I had that many! Should be required reading for all government officials and CEO’s.

  • And an important link in the chain, something I tell everyone time and again not to listen to, the media and so-called “experts.”

    If you never listen to the media, never listen to the experts, never listen to the politicians, their power will fade and you will be a happier, sounder person.

  • You forgot about the congressional mandate to lending institutions to loan money to people that couldn’t afford it. And the public’s accusations of red-lining if anyone was turned down for a home loan even if they obviously couldn’t pay it.

  • The condition of the country has ruined to that much extent that the world nations should come forward to help it. The unemployment and poverty has destroyed the lives of the millions.

  • ^ james above….stfu the visual was dope!

  • Very nice. I am linking to it :)

  • Nice omnigraffling.

  • Hey! You forgot one not-so-small thing: fiat currency… That means; money made worthless, by decree (government order, not vote). Once the U.S. was off the gold standard, it was open season for the ponzi scheme banksters. That was made possible only after a private corporation was put into place for the purpose of printing our off-the-gold-standard money. From there, it is not too far a jump to more system wide economic manipulations… That private corporation?… It is called the Federal Reserve… Believe it or not.

  • I love this! I think that you are, however, missing the community activists influence over law makers and banks that pressured a lot of them in to policies that forced them to accept an abnormally high number of bad loans that they would have normally not accepted the risk on.

    I’d love to see that aspect included… but all in all: this is a great and simple explanation! Thanks.

  • You forgot to add that people spend beyond their means, accumulate credit card debt they can’t pay, consolidate the debt into a second mortgage, and then they are really upside down on their homes. I think basic financial irresponsibility on the part of the people contributes as well.

  • Thanks, that was a very interesting read. The history behind the facts…

  • The only issue i have with this graphic is the implication that the mortgage being for more than the house is worth CAUSES the homeowner to not be able to pay the mortgage.

    The amount of the mortgage has not changed, so the drop in value of the home doesn’t itself impact the homeowners ability to pay.

    The issue is that the homeowner could NEVER have afforded to pay for the home over the long term — they bought the home with an artificially low interest rate, counting on the home value increasing before their payment increased, so they could sell the home, and make a tidy profit on the “instant equity”. They could then either repeat this process, or could purchase a sensible home.

    It’s not the disparity between mortgage value and home value that caused homeowners to be unable to pay, it’s that they couldn’t afford the home in the first place.

    -TSG

  • You need to start the first diagram with a big box entitled ” Government / Congress deregulation opens the doors to criminals who jumped at the opportunity to steal citizens money out of 401k’s and pension funds and personal investing” then add a box at the end “Government steals our money to cover the bets of the crooks and so they can pay off hedge funds and overseas banks & governments”

    Put it to the US Citizens on ALL sides of the transactions.

  • He’s just missing how it all started on 9/11 recession bubble passed to housing sector supposedly to avoid crisis… ja!!!