
A Visual Guide to the Financial Crisis - peter123
http://blog.mint.com/blog/finance-core/a-visual-guide-to-the-financial-crisis/
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Dilpil
We should've realized there was a problem when low income workers making below
the poverty line became the hot new commodity in finance. Whereas in the 80s,
young men in finance spent hours calling rich people insisting they give them
money, in the last 5 years, they have instead been calling up poor people
insisting to give them money.

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Alex3917
"We should've realized there was a problem when low income workers making
below the poverty line became the hot new commodity in finance."

Except for those loans aren't what caused the problem. Rather, the problem was
caused by the investment banks betting on those loans.

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maurycy
The loans were the consequence of betting. Or, more precisely speaking, of
false belief that AAA rated papers, which were betted on, are safe.

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Alex3917
No, the loans were just bad investments. That is different than betting, at
least in the sense that wall street people use the term betting.

C.f.
[http://www.dailykos.com/storyonly/2008/11/13/201226/64/403/6...](http://www.dailykos.com/storyonly/2008/11/13/201226/64/403/660641)

Or listen to the NPR series on credit default swaps.

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maurycy
But the reason why companies were so happy to lend so much money was caused by
a belief, which turned out to be false, that loans securized into CDOs and
such papers, frequently rated well, are safe and risk is properly managed.

The betting merely caused a spread of the risk between all market
participants, making it systematic risk. Also, the betting was not properly
managed because market partipicants weren't able to understand the risk.

Also, one might say that the reason why companies started securization and,
then, betting on the papers are low interest rates, but, please, let's don't
dig into the whole Fed discussion.

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Alex3917
The betting didn't just spread the risk, it magnified it.

For every dollar the banks lost on bad loans they probably lost 30 dollars of
bets on those loans. No one even knows the exact number because the market is
completely unregulated.

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maurycy
And the reason why banks, and not only banks, lost so much on the papers is
because the loans were basically worthless. Banks knew that loans were
worthless but the paper's ratings created a different impression, boosting the
loans.

The spread part is very important. If there were no betting, selling and
reselling of the papers, then only bad lenders would collapse.

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dmix
Summary: The government create an unhealthy economic environment that bankers
took advantage of while the media was clueless.

Result: The media sensationalizes the situation-creating panic, the bankers
get blamed and the government is going to save us.

Public: its OK, everything is being taken care of, you can now get back to
your reality TV shows.

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nailer
The US administration had the best of intentions: as stated, to improve the
home ownership rate of blacks and hispanics. You can find GWB making speeches
about this in 2003. They also failed to regulate the markets where the bad
debts were being sold with good credit ratings. Incompetant yes, immoral no.

The banks intentionally obscured the value of the bad debts to other
investors. And greedy people were encouraged to get second and third homes
when they didn't need to by greedy real estate agents. That was immoral.

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justindz
This reminded me of the "subprime explained" comic as a novel way of getting
the complexity across:

[http://docs.google.com/TeamPresent?revision=_latest&fs=t...](http://docs.google.com/TeamPresent?revision=_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true)

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ojbyrne
That made me chuckle. Of course the fact that I've made it to another Friday
with a (nice) paycheck helped.

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jobeirne
Where's the Community Reinvestment Act? Specifically, the revisions made to it
in 2002.

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subbu
I never understood the basis of the current financial crisis. Now I do.

