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Desc:A simple description of the current financial crisis
Category:Educational, News & Politics
Tags:mortgage, Credit Crisis, alphabet soup, financial crisis
Submitted:longwinded
Date:02/21/09
Views:4949
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Comment count is 37
baleen

Well done.
Desidiosus
We are so fucked.
godot
This isn't even a tenth of it. Someone else posted Chris Martinson's "Crash Course", but it understandably never got out of the hopper. While dry, its the best summary of looming issues I've encountered in years. The whole shebang is about 3 1/2 hours, but its in bite size chunks:

http://www.chrismartenson.com/crashcourse

Louis Armstrong
http://www.chrismartenson.com/crashcourse

mandatory viewing peaple. I don't care if it is over three hours long.

Stog
Lovely.
Old_Zircon
Well, at least housing prices won't be disgustingly inflated anymore.
Louis Armstrong
Waiting for Cena Marks comments on how this is stupid and inaccurate(unless of course the nice picture show allowed his mind to wrap around some of these concepts).
Space Helicopter
He knows it's all Obama and ACORN's fault. Of course the government made them get subprime loans. We all know how the market was the government's bitch in the last 8 years.

Camonk
Well now I understand why everything is terrible. I'm not sure if that's good or bad.
kamlem
If everything is terrible, then nothing is.

godot
We collectively decided to invest in suburbia, rather than productive assets. Think about this: for the past 9 years, U.S. cash withdrawals from mortgage refinancing and home equity credit lines amount to about all the real economic growth in GDP. That only works with easy credit and rising housing prices. So, halting that trade, we have to give up about 9 years of progress.

The Chinese will eat us for lunch.
allcaps
Yes, China has been entirely unaffected by this economic crisis. Itīs certainly not revealed their entire economy to be built on a foundation of cheap, shoddy plastic crap. Itīs a good thing that the Western consumer, flush with cash, will continue to purchase this crap and keep the millions of disenfranchised migrant workers employed, hopeful, and tolerant of a corrupt system grown corpulent upon their labor. Yes, as long as thereīs not some kind of economic crisis this whole economic crisis will just fllllllly over Chinaīs head and HOLD ON, I JUST NOTICED SOMETHING!

godot
The debt binge began around 1985, about when Deng Xiaoping began accepting foreign capital inflows to build a resource and manufacturing base. 24 years later, the US is significantly more dependant on imports of energy and raw materals, has lost much of its manufacturing base as capital sought absolute advantage elsewhere, and our major service export (financial services) is seriously impaired for the forseeable future.

Every currency bloc will inflate its way out of this crisis, and afterwards, the Chinese will still have goods to trade for Saudi oil, Australian ore, Jap technology. Indeed, they're using this shakeout to buy controlling interests in iron ore, met coal and oil projects on the cheap. Meanwhile we've taken on debt (payable to the Chinese) to pay for suburban sprawl and optional wars. We're crossing our fingers and hoping the free market will provide.

And, they now have a "nuclear option" of simply selling off their US treasury holdings. We don't have any similar leverage over them.

Coax_Current
Thanks for linking that godot. Everyone should at least go to http://www.chrismartenson.com/crashcourse and skim the sections, pick up on what they don't know. Too bad Martenson didn't have help from this guy.

One of the traditional sources of leverage for the US: sea lanes and general influence over shipping routes for energy resources, which China needs. This is not as strong as it used to be, and Russia, for example, has been showing the world how impotent we are becoming. However, power everywhere is getting shaken up with the crisis--even (real) pirates are in the fray.

China is very dependent on the import of materials and energy resources, and one of their main goals is energy security. Yes, they've invested heavily in foreign oil and gas too, but it's not enough. They use too much damn energy (not surprising for the population). They're running out of coal. Beijing jerks around the pricing, too, trying to keep the house from falling. Add to that environmental catastrophe, soaring unemployment, rampant corruption, and you have a recipe for a Chinese collapse.

Yeah, it's bad in the US, but no one is left holding good hand. The world is fucked, and a lot of it is still very poor, and violent, and armed.

godot
An article on how the Chinese are taking advantage of the moment:

http://www.time.com/time/world/article/0,8599,1882594,00.html

citrusmirakel
I feel edified. Which is to say I'm suspicious that this might be all totally inaccurate But I'll believe it until another cartoon comes along to refute it.
Herr Matthias
Some days, you just can't get rid of a bomb.
kamlem
Just ask Batman...

Oktay
Or Clouseau...

Kojack13
Glad to see an explanation that correctly starts with the dot com bubble bursting. The Internet is actually to blame for all of this! hahahaha

I love how no one ever talks about that
Xenocide
In my irrefutable vision of the coming post-apocalyptic future world which should begin to come true in about three hours or so, the ignorant peasants of the doomed shanty-towns which populate the vast, desert wasteland now called "Amerr-eye-icia," tell a creation myth about how the world came to be the way it was.

The actual complexities of the crisis having been lost to time, the story hinges on a turning point, which typically involves the storyteller (usually a wise old man, old enough that his grandparents might have known, in their youth, what clean water was like) raising his hands over the campfire and saying, in an ominous tone, "AND THEN THERE CAME THE ONE CALLED....GREENSPAN."

The children shudder instinctively.
TeenerTot
Captain Walker'll save us.
Wooooolkaaah....Wooooolkaaaah.

ZugZug
I like the song at the end, good beats yo.
Tuan Jim
I need all things economic to be explained to me in this way.
revdrew
I need everything explained to me this way, period.

Angry Bear With A Laser
wonderful
splatterbabble
So simple, I even understood it!
Frank Rizzo
damn


Wonko the Sane
I like the implication that people who took out sub prime loans are fat alcoholic smokers with too many kids.
Syd Midnight
In the British explanation, they were southern black men with string ties

keinsignal
string *vests*.

NoCode
So this is all the fault of evil bank wizards and Casey Serin.
bopeton
They're actually missing the bit about interest-only mortgages made to borrowers on the sole assumption that the house's value would keep going up and they would just refinance in a couple of years and nobody would have to deal with it.


fluffy
I always wondered what sort of idiots would get an interest-only mortgage, which always seemed suspiciously similar to "renting" to me.

Repomancer
Because of the tremendous demand, a house increases in value rapidly (heh). You earn equity from the price inflation, not from paying down the principal. You aren't going to live there, so you don't care that the mortgage will never get paid off -- you're going to sell and use the profit to pay off the loan. You wait a bit for the price to go up, then turn around and sell it. Remember the bit about tremendous demand? You can always sell with no problem (heh heh). A house you bought six months ago can easily be flipped for twice that (heh heh heh), netting you enough to pay off the mortgage and net hundreds of thousands in pure profit. If you were smart enough to get a zero-down loan, you don't have any skin in the game whatsoever; your initial investment is zero and your ROI is practically infinite. If you bought it for less than where could get it appraised, you could originate the mortgage for the appraisal price (not the sale price) and pocket the difference right up front, if you were a little sneaky about it.

At least, some people managed to pull that kind of scam off in '05 and before. When they saw the writing on the wall, they stopped investing and started hosting financial seminars explaining the trick to greedy suckers.

If you were Casey Serin, you used stated-income or no-doc loans which didn't care that you were unemployed and without income. A no-doc doesn't require any information at all, and a stated income loan let you claim to be making 0-750K, or whatever you needed to get the mortgage. You also bought seven houses in four months in four different states, so the mortgages were taken out so quickly they didn't have time to show up on your credit report, and all the lenders thought you were buying a single house. Claiming all of them as your primary residence helps with the terms of the loan, too.

If all else fails and you really did want a place to live for some bizarro reason, you just refinance before any balloon or rate adjustment. Credit is easy, and anyone with a pulse can get another mortgage (heh heh heh heh). With the continuing and apparently limitless increase of housing prices, you have to get in RIGHT NOW even if you can't really afford it, otherwise you'll be left behind. You can always take out a second or a HELOC, basically a loan collaterized by the equity, and buy SUVs, cruises, and bigscreen TVs -- instant riches without working or taking risk for any it, all with money earned by your house.

Heh heh heh heh heh.

AimoKankkunen
Nice explanation, one thing though.

What happens to the family who abandon their home/house ?

Why do that, that way they lose all the money they already paid ?

Sivak
House was 0,000, is now ,000.

He has put ,000 into it already, needs 0,000 more.

If he leaves and gets another house that is ALSO now ,000 he ends up paying 0,000 total instead of 0,000 saving himself 0,000.

Or, if he wants to break even, use the extra 140k to get a much BETTER house.

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