The Crisis of Credit Visualized

[Moonlight Graham]

This is great! An easy to understand video explanation of the credit crisis. Thought i'd share. Enjoy:

[eyeball]

Visualizing the bailout is even easier. The Keystone Cop's Bomb-Squad.

[Oleg Bach]

Visualizing the bailout is even easier. The Keystone Cop's Bomb-Squad.

That's bad - or maybe the robber barons of old running off with ballons full of stale air with dollar signs written on them in black marker? At least the robber barons would skip town with bags or real gold..these guys are not even good at stealing - I could see them in the Camen Islands or some Brazilian back water town trying to cash in a bag of digits.

[August1991]

Aside from a grotesque simplification and occasional rank errors, the video is not bad. It presents the same two culprits noted elswhere: Greenspan kept interest rates too low and/or the Chinese/Japanese wanted to lend to Americans. (Both facts were arguably true in the 1990s but the US didn't have a housing bubble then. I digress.) Then, the video argues that poor people had access to mortgages. (Huh?)

Underneath all though, the video takes as given that house prices rose. Well, why? Why did people suddenly want to buy houses? Why did people buy three or four houses? Why did people suddenly sell their house and buy a bigger house?

Most people thought that a house was a safe investment, a nest egg for their retirement. Many boomers thought of their dying parents and believed that a house was the best way to pass wealth to their children, or to protect themselves in old age. Frankly, God knows what people thought.

And that's why I offer the following quote (replace the phrase "pyramid scheme" with "real estate market"):

The pyramid scheme phenomenon in Albania is important because its scale relative to the size of the economy was unprecedented, and because the political and social consequences of the collapse of the pyramid schemes were profound. At their peak, the nominal value of the pyramid schemes' liabilities amounted to almost half of the country's GDP. Many Albanians—about two-thirds of the population—invested in them. When the schemes collapsed, there was uncontained rioting, the government fell, and the country descended into anarchy and a near civil war in which some 2,000 people were killed. Albania's experience has significant implications for other countries in which conditions are similar to those that led to the schemes' rise in Albania, and others can learn from the way the Albanian authorities handled—and mishandled—the crisis.

The wide appeal of Albania's schemes can be attributed to several factors, including Albanians' unfamiliarity with financial markets; the deficiencies of the country's formal financial system, which encouraged the development of an informal market and, within this market, of the pyramid schemes; and failures of governance.

IMF

Bubbles happen. An Albanian youtube video would present the story one way, an American youtube video presents the story differently. Generically, Greenspan once referred to them as "irrational exuberance".

The State cannot prevent speculative bubbles but it shouldn't encourage them. As a minimum, we need a better way to clean up after them.

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BTW, Gosthacked posted this video before.

Edited March 12, 2009 by August1991

[Oleg Bach]

Aren't these excieting times! I never thought I would see in my life time the collapse of the American empire..better than that I never thought I would see it slowly bleed to death as it lay on it's side - This is the death of a nation and the regenerative birth and resurrection to follow - the new America will arrive soon - better - stronger and less mishievously corrupt. I have faith.