
The Crisis of Credit Visualized - a simple yet effective description of the current crisis - fiaz
http://crisisofcredit.com/
======
johnbender
Very cool, but the Bomb visualization fails to explain an important fact. The
investment bankers aren't receiving cash from the homeowners, but those assets
(houses) are not worthless.

Given time (in this case a bailout) those houses should return to normal value
via demand once they've gone low enough for people to want to buy them again.
At least that's the hope.

~~~
DenisM
Bankers are leveraged. It doesn't matter if the house went down 40% or 100% -
they are broke and out of business either way.

~~~
kubrick
I am not an expert on this. However, it's probably worth mentioning here what
I've understood from economists: the banks are not nearly as broke as they say
they are -- the ones that are still in business, anyway. If they were really
that broke, they wouldn't have taken the TARP money to buy out competitors and
give upper management the fat bonuses. The banks that _are_ going out of
business ... well, they aren't, really. They're being bought out (e.g. WaMu)
and the assets are now held by the parent bank. In that light, I think the
original commenter's point stands; the houses aren't worthless.

------
pixelmonkey
The visualization mentions credit default swaps, but then doesn't show how
those, too, contributed to the cycle as all the investments were being
unwound. My somewhat primitive understanding is that since the 'safe' tranche
of the CDOs was 'insured' via a CDS, when the defaults actually happened, the
banks had to pay back not only the amount they had borrowed, but also an
additional CDS payout. This contributed to the bankruptcies too, I think.

~~~
hardik
The CDS were underwritten by other large financial institutions for relatively
cheap premiums. These institutions thought that "safe" assets will never go
out of money so the insured event will never occur.

CDS is the reason AIG went bust. It gets trickier, they did not go busting
having to make make payments for the CDSes that they had written but the
likelihood of them having to pay increased in light of increased defaults, so
the rating agencies cut the rating of AIG. Now, whenever CDS or similar
derivatives are written they are done looking at the ratings of the parties
involved and with caveats that any fall in ratings would translate into the
parties making additional margin payments (money to safeguard against parties
defaulting); getting back to the AIG story, when the ratings fell, they were
obligated to pay additional margin money to the tune of billions.. which they
did not have.

A small facet of the big big story.

------
gsmaverick
Amazing visualization. Taught me something even though I thought I understood
what was happening!

------
tlrobinson
Great visualization, really clarifies it.

FYI, the copy on Vimeo loaded _much_ faster for me:
<http://www.vimeo.com/3261363>

------
newt0311
YES!!! Finally an explanation from a non-economist that doesn't descend into
progressive-populist-bankers-are-evil propaganda.

And yes, a second video showing the actions of the government would be nice.

~~~
hackinthebochs
Actually, I think this video legitimizes that view. What else would you call
using other people's money to bet that you can hand off the time bomb to some
sucker before it explodes?

