A Visual Guide to the Financial Crisis

Are there more Madoffs in the hedge fund industry? Let us hope not. We should not forget that for a healthy corporate growth and concomitant economic growth, savings and sound investment is the key and hedge funds do provide a pooling mechanism to channelize funds into the financial markets. Whether you call it hedge funds or by some other name – it is there to stay and let the aberration in the form of ‘Madoffs’ be out of our way.

This is a great diagram. However, an essential element is missing: the origin of the basis of the risk valuation is an underlying view (set of models) of how the economy works (and a set of institutions within the financial sector that uses). Arguably economic modelling profession is as much in crisis as its subject.

@Venkat: your answer has arrived.

http://www.mint.com – great domain name for blog like this)))

TAKE ONE STEP BACK – WHO ALLOWED THE THE CAP. GAINS TO BE REDUCED OR GO AWAY, EFFECTIVELY ALLOWING ALL THESE INVESTORS TO CREATE THIS MESS? ANYONE EVER HEAR OF A THING CALLED GREED? THE LOVE OF MONEY IS THE ROOT OF ALL KINS OF EVIL. MONEY IS A TOOL, NOT THE ANSWER TO LIFE!

Excellent guide man!

izzy, I couldn’t agree more!

It is de-regulation and the myth of the ‘free-market’ that got us into and continues to widen this crisis.

Isn’t the role of 9/11 important as a background cause. Great job

Looking back in the early 2000’s the largest worry on most Americans is the war in Afghanistan and Iraq. The cost of war had people worrying about tax hikes and gas prices. Did anyone see this landslide economy disaster coming and how could an economic crisis so significant just appear?
In retrospect I would say the first instigator of pending disasters started with the deregulation of the public utilities. The fake rolling blackouts of California turned out to be a price-manipulating tactic. Why should the public have to trust a private profit driven business model for modern necessities?
Did everyone notice that in the early two thousands it seemed that mortgage brokers were instantly everywhere. Even your buddies were doing it, bugging you, “make sure your refi with me old buddy”. I remember thinking. “what the hell”, why, what am I missing. Well, seems that the fees charged to close a mortgage could go from 5k to 50k to do a whole lot of nothing. Nice. The word “stated income”, seemed to be the easiest way to get the deal closed for sure. “Stated Income”, intended statistically for a little higher interest rate acting as profit insurance on the statistical default rate as well as the house value to ensure a solid banking investment. Did people lie about their income to get the loans. All the time. So why didn’t anyone care. Well, weren’t brokers getting paid 5 to 50k for nothing, with a seeming sound banking model backing them up. Oh yah. Actually, most of the times the brokers did all the paper work, filled in all the numbers with next to no input short of names and SS numbers to get the deals closed fast and many. The public is the product, “bring them in buy the truckload, its time to make some serious cash”. This run away business model became the mechanism for high volume loan closing and high profits to brokers and bankers. Don’t forget these broker fees get worked into the loan. So a good part of the fees paid out to the brokers are still owed through the loans and a lot of the public are to this day still in debt to these fees.
But everything seemed to be going so well. It wasn’t that bad. The model was working. Working families in the US seemed to have achieved a delicate balance with their budgets with their income vs. there debts. Most families were making it. Close but were pulling it off month to month.
Here comes the landslide. In 2008 the gas prices decides to pretty much double. A few months of this converts higher prices in pretty much all commerce due to the transporting and manufacturing costs. The delicate budgets of millions a families are disrupted. Month after month families attempt to balance out there finances, but to find themselves unsuccessful. For a moment, view the total money circulating in the U.S. economic infrastructure as a full cup of water. When one entity such as an oil company achieves record billions in profits. In other words billions of dollars are removed from circulation and is sitting in a companies account. Sort of like taking a 3/8 cup of the water instead of the 1/8 cup the company usually got. Consequently leaving the rest of the country to pay expenses short ¼ of the money that was usually economically available. If the money is gone, its gone. Simply cant be used if its not there. Simply speaking, the money has been removed from the economy in the form of record fuel company profits.

Did anyone notice that when you start running out of money, our good old bank friends seem to want to take even more cash than ever? A few checks get returned. Lots of $35 charges. Usually $350 per cycle of 10 checks max the law allows to charge per day. Interest rates seem to really jump missing a payment. What about those 2-year arm adjustable rates, mortgages going from $2800 per month to $4300 per month over a month period. This is the same for businesses. When sales get low, expect tons of over draft charges. It seems way better to run your store with cash daily. Forget writing checks. You’re just being a sucker to the bank system. Even the electronic bill pay system puts a day delay on removing the funds they send out with the hopes of creating an over draft situation. Just clear the checks paid as the store sales and withdraw the cash and operate with cash. Save thousands in fees. Pretty much all bills that are late get ridiculous fees attached, from taxes to utilities to credit debt.
What is the public to do. We carry the huge burden of ridiculous fees when money gets low. The economic landslide is inevitable in these conditions.

Problems summery:

Unstable utility costs
Unstable fuel costs
Current banking, finance and insurance systems

Ronald Reagan really had it wrong when he said, “government regulation is the problem not the solution”.

A private company should not have the ability to paralyze the U.S. economy single handedly.

It is essential to have all critical economic infrastructures government regulated, primarily, Banking, Insurance, Utilities and Fuel Systems.

I would also recommend getting the economy somewhat a little less stressed and back on tract if it were passed by congress to have one or two months revolving credit debit and mortgage payments deferred if requested by the borrower. It would allow families to catch up with some other bills and get a little more cash injected into the country instead of the bank systems.

These business systems have the potential for corruption, greed for record profits at the health of the countries expense. We cannot depend on groups of businessmen to act honest and ethical nor should the pubic have to. It needs to be insured by written laws and sustainable by government systems.

why not blame our x president bush? was this war really necessary?

wow dude