And now for something COMPLETELY different . . .
Feb202009
In spite of my undying love for Paul Krugman, this blog will never do financial news because I have no clue about economics except what I read in Krugman’s blog. However, thanks to Jonathan Jarvis and this video, I do finally understand the credit crisis. (And a big thank you to Andrew Sullivan and the Dish for the link.)
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Filed in Pictures
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26 Comments to 'And now for something COMPLETELY different . . .'
On February 20, 2009 at 5:38 pm Diane (TT) said...
Well, that was cheery. Actually, it really was sort of a fun way of visualizing it. Paul Krugman was warning us for YEARS that this was going to happen. And no one listened. Oh, well.
I don’t really WANT this to last long enough to be good for us. We’ll just have to wait and see.
On February 20, 2009 at 8:16 pm Karla said...
Wow. That was excellent. Thank you for sharing
Karla
On February 20, 2009 at 9:24 pm Christine said...
Personally, I liked this one, but don’t look at it if you don’t like some strong language. (Also, you need to make it fullscreen so you can read it.)
http://www.slideshare.net/guesta9d12e/subprime-primer-277484
On February 20, 2009 at 9:40 pm Jackie said...
What has me furious is that I have been hearing about this for YEARS. And no one paid attention. Until it all actually broke and we (and that is a global we) are stuck with the mess.
On February 20, 2009 at 9:47 pm misspiggy don'twannabe said...
The other scary parts of it are that foreclosed homes are being trashed by unhappy former owners and rents are going up because the foreclosed folks need places to live. It’s one irrational thing after another.
On February 20, 2009 at 11:11 pm Someone said...
One word can describe this at all levels: Greed. No one ever seemed to be satisfied always wanting bigger and better and more. I see this as a problem even at the homeowner level. I know too many people who purchased a home they could not afford just because they could get the loan. I like the idea of a cash economy. Granted, I didn’t have enough to pay cash for my home, however I looked at what would happen if I lost my job, could not get one for whatever reason for at least five years. Could I afford my mortage payment? If the answer was no, then that house was not for me. Also, one should consider how long they plan on staying in said home. If it is a short period of time, why buy? Why not lease? I have lived in my house long enough to be able to say I’ve only a few years left on my mortage payment. Sure, I could have moved a few times in the years past simply to get bigger, better, and more, but frankly, what was the point. Soon enough kids leave and then one will want smaller. Truthfully, I like my house. Sure, it’s not what it was worth a few years ago, but I can still afford it even if I was unemployed for five years. My point, it’s not just the lenders that got us into this mess, it’s us. We want and want and want and think we deserve and deserve and deserve without giving any thought to what will happen in the future and we allowed ourselves to be taken advantage. Hopefully, the current leadership will lead us out of this mess. Hopefully we will have learned from out mistakes, although history has proven we are not very good at that. However, I am hopeful. I think our president has got some great ideas, although there are some that scare me. Trying times indeed.
On February 20, 2009 at 11:32 pm Jenny said...
You know, I consider myself fairly conservative since I’m self-employed. And I’ve bought several houses as I moved around in the past ten or so years. But I never really understood how mortgage companies arrived at what they stated I could afford. I just trusted them. That’s why you go to professionals. I did look at the size of the house payment I was going to be making, I could figure out if that fit my monthly budget, but I pretty much trusted the pros to decide if the size of the mortgage they were offering me was appropriate. I could so easily have been any of the people losing a house now, and I wasn’t particularly greedy. It was more about seeing a place I wanted to live in, imagining myself and my friends and family there.
I think the thing most missing from the homeowner’s side of the equation is how much of buying a house is buying a story. Sometimes you look at a house and the story is right there, when you get out of the car or walk through a front door, the house folds around you and whispers the story you’re going to live if you buy it and then forget being sensible or figuring out worst case scenarios for five years. The story has you. I think I’ve lost money on every house I ever bought, but for the most part, the stories always came through.
Maybe that’s why houses are so often big motifs in my books. They’re so much a part of the heroine’s character because they whisper that story to her.
I don’t care if the speculators go down, that’s the whole point of speculating, the risk. But it breaks my heart that people are losing their stories because they trusted some mortgage broker who said, “Nah, you can afford this, go for it.”
On February 20, 2009 at 11:59 pm Paula said...
This mess we’re faced with makes so much sense now! I mean, it doesn’t actually make sense how we could have let such a situation come to pass, but at least now I know what happened.
On February 21, 2009 at 8:54 am Someone said...
I too am self-employed. Own a small business that does modestly well. Hurting right now just like everyone else. The few empoyees I have are part of my family. They are hurting as well and it breaks my heart that as I cut back as a business owner, reduce their hours, I am hurting their families.
I do understand the story behind the house. One of the reasons I have not even considered moving in many years. My home is part of who I am. It is part of my own personal story. My family and friends gather here on holidays or just for fun. It is my backbone. It owns my history. I know between the interest I have paid, the money I have put into taking care of my home, new carpet, other things, I have spent more than what my house is worth in today’s market. Probably more than it will ever be worth.
I know I take being sensible and looking at would happen if everything went wrong to the extreme. I’m a firm believer in the idea that my fate is in my hands. While I can’t control anything from the nose out, I can control the decisions in life I make.
That isn’t to say my heart does not go out for those who have lost their homes. It’s sad, wrong, and should not have happened. The greed that started at the top, trickled down to the homeowners who in many cases simply wanted a nice home for their families to create a history.
There are many untrustworthy professionals out there. History has shown us that. As a writer, we are always told by our fellow published authors to stay away from scams, bad agents, and publishers who are not of the big NY houses. Many authors, in their desperation to sell their story, fulfill their dreams, fall prey to these unscrupulous people and in the process they loose money, the rights to their book, their dreams.
I didn’t mean to sound as if I blamed the homeowners. I really don’t. Can’t fault anyone for wanting to take care of their families. It’s the whole process. The whole idea of buy now and pay later. Inticing people with 0% interest for the first year, or whatever. Borrow as much money as you are allowed and worry about paying it back later. I once heard someone say that they had achieved the American dream – they we in so much debt they couldn’t see climbing themselves out of it, ever.
On February 21, 2009 at 9:48 am McB said...
What makes me crazy are the people who knowingly gambled on the housing market. And that’s exactly what it was, a gamble. Yes, the bankers whispered sweet nothings in their ears and tempted them. Bad bankers! But that greed worked both ways. The purchasers wanted more than they could afford so they let themselves be lured in.
The people I hurt for the most are those losing jobs. They did everything right and they still lose because the actions of other people have snowballed.
On February 21, 2009 at 1:49 pm Diane (TT) said...
My parents spent 35 years in the same house. It was a starter house (1500 square feet), but as we got older and they could afford more, the housing market exploded (Silicon Valley, CA), and it would’ve cost them $250,000 MORE (and this was in the late ’70s/ early ’80s; the Bay Area is crazy expensive) to move to a bigger house on a bigger lot, and they chose not to. So, it was cozy, when my sister and I were in High School, but then it was the right size for them again when we left home.
Looking up the house on Zillow, it’s back down to only about 15% more than they sold it for in 2004 – it had gone up to 33% over what they sold it for, a ridiculous amount of money for a small house on a small lot. But, unless the people who bought it took out a huge line of credit on it, they should still be OK.
We all have probably inflated ideas of what we should have: looking at homes from the ’50s, I can’t fit my stuff into a place that once, doubtless, raised a whole family (I’ve seen little 3 br houses that probably wouldn’t hold all my KITCHEN stuff, let alone anything else)! We expect spacious and nicely fitted homes, even if the down payment isn’t in place.
On February 21, 2009 at 1:55 pm Jackie said...
We all wanted to believe. Some of us were at least a little cautious, some of us just bought the stories. And some of us just told ourselves the stories. It’s hard to look ahead. It’s hard to do anything when we are taking into account what could go wrong. I don’t think we could build anything if we couldn’t dream. But every once in a while we are going to be bit hard by our desire to create, to build, to have more. Luckily there ARE Bobs and Someones out there saying be careful, what happens if…
The problem is, when to listen to them and when not to.
On February 21, 2009 at 3:45 pm lady t said...
Thanks for the link! Makes things clearer. And the comments are helpful as well…interesting discussion.
On February 21, 2009 at 8:31 pm Caryn Caldwell said...
That was excellent. Thanks for posting it.
A few years ago my husband and I took the plunge and bought our first house. We were appalled at the amount of money we were approved for — double what we felt we could comfortably pay each month. I can see how people who are desperate for houses could be talked into getting more house than they could afford. All it would take would be an illness, injury, job loss, new baby, whatever, and they could end up defaulting. Very risky, for them and their lenders. Though now I can see why the banks were willing to take that risk. After all, the ex-homeowners may be out of a house, but that bank could just sell the house — for a profit.
On February 21, 2009 at 8:54 pm Melissa Blue said...
Well, I called the lastest economy a toilet that wouldn’t stop flushing. So, my theory was right. Glad to know.
On February 22, 2009 at 6:19 am Door Cty Bound Cherry said...
Your “expert” conveniently left out the 2006 Congress changing the bank laws lowering the standards for home loans, so that more people could have houses. (A noble thought) but it meant people who were Bad Risks who shouldn’t take on this kinda of debt, were allowed and this helped to result in this and this is only 10% of the lenders. 90% of mortgage holders are STILL Paying their loans on time. So the people who really shouldn’t have qualified, but who were, are actually in worse shape now by the 2006 thinking they were helping these people when now they are in worse shape. The top congressman who received compensation for these actions were Chris Dodd, John Kerry and Barack Obama.
My husband has an Masters in Finance.
BTW The Bush Administration tried to block this changing of the bank loans rules by the Congress but were blocked by the Democrats. There is a huge list of Congressman who received money and it is both sides of the aisle. 7/08 Barney Frank was the one who said EVERYTHING is fine. He also lives with one of the upper level people who runs either Fannie Mae or Freddie Mac
On February 22, 2009 at 6:56 am Door Cty Bound Cherry said...
P.S. The house flippers and the one-uppers are also in this mess. Slimey sub-prime loan lenders were only too happy to ignore the home owners who lied about their incomes to get into that McMacsions.
Some people thought they’d make a killing the way housing profits were climbing but got caught in the web when the bubble burst. What goes up must come down. Business is cyclical.
Sub-prime guys got their cut of the loan, to the slime sub-prime lenders, who cares, they thought, no biggie.
That is now, why certain people actually owe more than their house is worth now. Because the lending standards were lowered so much. Giving away loans practically, no standards.
Thus the huge reaction on friday to the Guy at the Mercantile floor in Chicago who is a fed up on time mortgage payer(who was doing it the right way, now punished by having to pay his part for the liers and the innocent people(who were sold a bag of risky goods, never believe a deal is good if its sounds too good) who are caught in this mess.
So when people with law degrees mostly (2006 Congress) make decisions that should be made by people with fiance degrees and such, walaa. Credit mess.
Goverment helped make this. Now they want to fix it? Now this stimus bill that no one had a chance to read is just shooved thru? Unreally stupid.
It’s a wonder why anyone would think Government would be the solution! But now we have a porkladen bill as a result. Congress is also on the gimme express too.
On February 22, 2009 at 8:59 am Jenny said...
Since deregulation goes back to Reagan and even Carter before him, I think we can pretty much saddle both sides of the aisle with this mess, although I think the fact that Clinton left office with no deficit and Bush left office with a crater in the budget speaks for itself. And as far as leaving finance to the finance people, I give you what the banks did with the first half of the TARP. Even Paulson was appalled with their irresponsibility. And I believe it was Greenspan who said that he made a mistake in trusting the financial sector to regulate itself by enlightened self-interest, only to find out that the “enlightened” part was missing. At this point, the only economist I’m listening to is Krugman because he’s been pointing out that this was coming for years.
As for pork-laden, define pork. If it’s building things that put people back to work and leave the country with something to show for it, bring on the pork and pile it high. Have you read the stimulus bill? I’m so thrilled about the rapid transit map I’m already making travel plans. Extended unemployment benefits that keep people going and spending until the jobs start to come back? Nothing puts money back faster into the economy than food stamps and unemployment checks. And I don’t know about you, but I’m all for fixing the bridges in this country that keep falling down and killing people. And the power grids that are failing because they’re so old. And the dams that are way past their prime years. And . . .
This country has a major infrastructure problem. It has a major jobless problem. The present government looked at that and said, “You know, we can do something with this.” I’m all for it.
But then I’m so happy with Obama right now, I do the Snoopy Dance every time he announces something new. He saved the parks! He’s closing Gitmo! He passed a jobs bill! I’m getting SO much more exercise with this administration.
On February 22, 2009 at 1:56 pm Jackie said...
I’d like to see him enact a civil service draft that everyone from the years 18 through 30 would need to register for and then serve between 1 and 2 years. And do what we need done and what they can do. I think it would be good for all of us to learn to serve.
On February 24, 2009 at 1:26 pm Michelle Cunnah said...
Jackie wrote: What has me furious is that I have been hearing about this for YEARS. And no one paid attention.
It was the same over here in the UK – DH and I couldn’t believe that it was being ignored, even after Northern Rock was rescued by the government.
But what an excellent analogy from Jonathan Jarvis. There is another good one circulating over here:
http://www.fapu.de/artikel-article.articleid-2464-Artikel-Vorwort-sel_lang-english.htm
On February 25, 2009 at 6:27 pm Bridget said...
I’m sick of hearing it’s all the Democrats fault. Or poor people’s fault.
So you’re saying that in 2 years enough people refinanced or received bad loans so that now we can achieve the rate of 9000 foreclosures a day? We didn’t have that many poor people in this country before this started.
And no, I’m not blaming all the Republicans either. But when you believe that no one needs regulation, you can’t say it’s not your fault when bad people game the system. When you cut the SEC’s enforcement arm, and the IRS’s enforcement arm, you can’t be surprised when people stop following laws.
The Washington Post did a wonderful series on AIG explaining why subprime became big business. And it wasn’t because of anything Congress did. It’s because they thought they had figured out a way to make money on those loans. And they did make money.
One of the reasons I’m hot on this topic is that one of my cousins could have been one of these foreclosures. She’s physically disabled and stubbornly independent, so neither her brother nor I found out she refinanced until the fact. Someone called her on the phone and offered to give her a mortgage on her paid for house. She had credit card bills so she thought this was a great idea.
It wasn’t until I did her taxes that I discovered it wasn’t a mortgage, it was a line of credit on her home (which doesn’t have the same protections as a mortgage) and it was an ARM. She signed what the nice lady told her to sign, what she was told was a mortgage. Yes, she should have been more careful. Yes, she should have had one of us look it over.
But given the amount she took out, the value of the property and her pension & disability insurance, there was no reason she couldn’t have gotten a regular fixed rate. Instead she had something where the interest rate changed when she was late on a credit card and the fees became outrageous. This was a very profitable refinance for someone. And this was 2003. She ended up selling the house.
I’m more of the theory we all hold some responsibility for this and we are going to have to be more careful in the future. But that’s not going to happen if we think this is all the fault of poor people.
On February 25, 2009 at 6:36 pm Chelle said...
This is really good. I lived in San Jose, CA until a few years back and it took ten years for me to scrape together enough to buy a house and even then, baby, that mortgage was a streeeetch. If my dad hadn’t died and my mom hadn’t needed me to come home I would be one of those people on the verge of losing their home right now. This is the year I was going to have to refinance my house to keep my low rate. How scary is that.
Housing prices in the bay area are insane, but then again, so is rent, and who doesn’t want a piece of the American Dream, right? Even so, when I think back to my mortgage broker telling me I could afford more house than I bought I shudder. Again.
Now, I’m in Kentucky and I have a mortgage that isn’t so much of a stretch in a house that’s about ten times nicer than the one I had in San Jose. The world works in mysterious ways, doesn’t it. Or maybe it was Daddy.
On February 25, 2009 at 7:39 pm Jenny said...
Yeah, I don’t think placing blame at this point does anybody any good. I think finding out what went wrong and making sure not to do that again is good, but basically it’s a whole new world now. We’re never going to back to what we had–which is good, I think, even though I got hit hard in this, too–so what we have to do is look at the way the world is now and plan for the future. Which seems to be what the Obama admin is doing.
As for blaming the Democrats, that’s so not working that I am now finding it amusing. Every time one of the far right Republicans blames Obama or the Democrats, their poll number do another slide. I’m almost rooting for them to be amnesiac jerks now. They’re such a good foil for the new admin.
On February 27, 2009 at 12:42 am Jackie said...
Quote Jenny “We’re never going to back to what we had–which is good, I think,”
I had just been noticing the other day that all the commentators on finance and real estate kept saying “It will be years until we get back to where we were”
And I thought – I don’t want to go back there. I want to go forward to a healthier, stronger, economy. For the US and globally.
On March 3, 2009 at 8:29 pm CrankyOtter said...
I bought in CA, one of the markets now crashing the fastest. But my choice was to buy for X amount of mortgage per month, or rent and pay taxes on what otherwise would have been a deduction which for the lowest reasonable living space available at the time amounted to X+$150/month. Good thing I like my condo. It’s one of the 10 cheapest available in my entire county at the time I bought. My salary covers it and I can still eat dinner out but have very little extra beyond that. Don’t even try to tell me I was irresponsible.
Well, I’m screwed. I bought into the market in 2006. It was starting to head down and I got a good deal on a short sale. I figured the market would level off or go down a bit, but had NO IDEA that 7% of people failing to pay off their mortgages would bankrupt Iceland, for instance.
But in the past 8 years I’d watched my ability to buy in to the market get further and further from reality. My friends who had extra cash from relatives after graduaation and bought in are sitting high on the hog, even now. My friends like me who saved for years and years only to compete with people who were short term owners with no money down? So we figured if we didn’t buy in sometime, we’d be priced out forever. Because even after the market crash in 2001, housing prices rose like crazy. That was our model.
The fact that experts sold these risky loans as low risk securities makes my head want to pop off. The fact that I had to compete on the housing market that was so overpriced most people here in labor jobs still live with mom and dad? Similar. So I’m all about having housing that’s affordable. My place costs 5X my annual salary. My parent’s first place that was worth money was 3/4X of my dad’s income while my mom stayed home to watch us. The ratio of income to property value, I want to see that number plotted somewhere.
On March 10, 2009 at 5:55 pm PG said...
I’m lucky enough to have inherited the place my grandfather bought for cash decades ago. Yet, even in this economy, I’m hounded by realtors swearing they’ve got buyers just begging to buy.
I haven’t used credit for years because there was nothing I needed that I couldn’t pay cash for – not wealthy, just not in buying mode and not faced with any emergencies (knock wood). If I wanted to get a mortgage, I’d be declined in a heartbeat because of my failure to use credit. I’m doing the Snoopy dance, though. I have no intention of selling this place, so, I have no need to buy a new one. Sometimes stagnation is a good thing.