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46. The Crisis of Credit Visualized
3 years ago
The Short and Simple Story of the Credit Crisis.
Crisisofcredit.com
The goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated. This project was completed as part of my thesis work in the Media Design Program, a graduate studio at the Art Center College of Design in Pasadena, California.
For more on my broader thesis work exploring the use of new media to make sense of a increasingly complex world, visit jonathanjarvis.com.
Support the project and buy a T-Shirt! cafepress.com/crisisofcredit
© Copyright 2009 Jonathan Jarvis
Crisisofcredit.com
The goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated. This project was completed as part of my thesis work in the Media Design Program, a graduate studio at the Art Center College of Design in Pasadena, California.
For more on my broader thesis work exploring the use of new media to make sense of a increasingly complex world, visit jonathanjarvis.com.
Support the project and buy a T-Shirt! cafepress.com/crisisofcredit
© Copyright 2009 Jonathan Jarvis
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I completely understand it now. Right around the 7:50 mark it started getting really good.
Community Reinvestment Act play?
en.wikipedia.org/wiki/Community_Reinvestment_Act
What part did Barney
Frank and the House
Financial Services
Committee play?
What Caused Our Economic Crisis?
youtube.com/watch?v=1RZVw3no2A4
Timeline shows Bush,
McCain warning Dems of
financial and housing
crisis; meltdown
youtube.com/watch?v=cMnSp4qEXNM
everyone needs to watch this
npr.org/blogs/money/2009/02/moving_picture_credit_crisis.html
p.s. great animation...
gamingthemarket.com
For viewers, it's also worth listening to a couple episodes of This American Life about the credit crisis:
thislife.org/Radio_Episode.aspx?episode=355 "The Giant Pool of Money"
thislife.org/Radio_Episode.aspx?episode=365 "Another Frightening Show About the Economy"
I wouldn't be surprised if that weren't one of your resources. Again, utterly fantastic.
Great work. Your a pimp.
Domenick Satterberg
Film '06
Congrats!
Great video, Thanks for sharing!
- Steven Burda
linkedin.com/in/burda
Its clear that the sub-prime bubble would not have taken place if Feds wouldn't have kept the interest rate so low.
And its clear that since currently the interest rates are so low "in the name of stimulating the economy", its going to result in another bubble. (I can already see you making a similar video in 2013 explaining the Alternate Energy boom crisis).
This is what I think is going to happen, under Obama administration the Alternate Energy ventures will get a big boost, like dot com bubble their shares will rise up to sky, people will presume that now market is ready to embrace alternate fuel resources, massive amount of money will be poured into alternate energy solutions to everything, from housing to automobiles to alternate energy powered laptops.
All these things will be a part of the new bubble(root cause would be the same, ridiculously low interest rates in 2008-09-10), and soon they will realize that they have thrown way too much money into some technology to where market does not naturally wanna go(like in sub prime crisis, market did not naturally want to give loans to sub-prime borrowers, but because of lose credit they did it).
Re: Blame and the Fed? Nope.
There is one additional piece missing from this argument of who to blame. Banks raised Sub Prime Adjustable Rates at just the wrong time for struggling homeowners, and that's what popped the bubble. Super Greed.
If we measure success in getting people into home ownership, this story could have been one of tremendous success. Sub Primes helped people get in who generally couldn't play before. Adjusting their mortgages too soon, pushed them back out. Given the economy of the time, people who reached to get in would most likely have been able to afford the rate increase over more time.
Imagine if all those people would have been helped by the banks. The banks could have extended the Adjustable Rate period for people that needed help - much like they are doing now. Keeping this whole new group of home owners in their homes keeps the payments coming and flowing to the CDOs. People who were struggling, were making their payments. They valued their mortgages and credit rating so much that they would continue to work extra hard to keep up - just what you want in a borrower.
The NINA loans were based on borrowers having a very good credit rating - not as irresponsible as to cause this whole mess in themselves. That's my point of issue with the "Turning Point" presented in this video. The loans themselves were risky, but not necessarily bad. If the servicing of them were different, the story would have been one of success - for everyone.
I foresee the government doing just this. Setting up bank competition by lending to the more stable Sub Prime borrowers, and getting the money flowing again. Proof of income is easy enough, rational financing with long APRs or low fixed is better than the nothing we have now. Hopefully those that walked away from home ownership can be brought back in, responsibly. Hopefully they still want to play after being treated so poorly.
Initially, policies of the U.S. Department of Housing and Urban Development (HUD) fueled the trend towards issuing risky loans. HUD loosened mortgage restrictions in the mid-1990s so first-time buyers could qualify for loans that they could never get before. In 1995, the GSE began receiving affordable housing credit for purchasing mortgage backed securities which included loans to low income borrowers. This resulted in the agencies purchasing subprime securities.
In 1996, HUD directed Freddie and Fannie to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005. In addition, HUD required Freddie and Fannie to provide 12% of their portfolio to “special affordable” loans. Those are loans to borrowers with less than 60% of their area’s median income. These targets increased over the years, with a 2008 target of 28%.
Other forms of political pressure related to providing housing to underserved communities and lower-income families contributed to the expansion of risky lending. A September 30, 1999 New York Times article stated, "... the Fannie Mae Corporation is easing the credit requirements on loans... The action... will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough... Fannie Mae... has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers whose incomes, credit ratings and savings are not good enough for conventional loans... Fannie Mae is taking on significantly more risk... the government-subsidized corporation may run into trouble... prompting a government rescue... the move is intended in part to increase the number of... home owners who tend to have worse credit ratings..."
In 2004, HUD ignored warnings from HUD researchers about foreclosures, and increased the affordable housing goal from 50% to 56%. The MBS were very attractive to Wall Street, and while Fannie and Freddie targeted the lowest-risk loans, they still fueled the subprime market as a result. Subprime mortgage loan originations surged by 25% per year between 1994 and 2003, resulting in a nearly ten-fold increase in the volume of these loans in just nine years.
In addition to political pressure to expand purchases of higher-risk mortgage types, the GSE were also under significant competitive pressure from large investment banks and mortgage lenders. For example, Fannie's market share of MBS issued dropped from a peak of 44% in 2003 to 22% in 2005, before rising to 33% in 2007.
Were the largest buyers of mortgages on the face of the Earth part of the problem - did they have a role in the misdealings that led to the economic collapse we now call, "The Great Recession"?
Yes. Of course. It would be foolish to say otherwise.
But they could not have been the cause. Credit - in the American economy - is controlled by the Fed. This short animated video correctly places the Fed at the center of the action.
Primary Cause: Federal Reserve.
Primary Actor: Alan Greenspan.
But the GSE cannot even be considered the secondary cause. Again, as efficiently and effectively presented in the video, the financial wizards of Wall Street took their talents in creating instruments that only they know how to create and exploded the derivates market that in 2000 was seen as "too small to concern regulators" into a market many, many, many times larger than the real economy.
No one employed by a GSE has the knowledge to do that.
And once one investment bank used one of it's Ph.D. math geniuses to devise a means to craft those collateralized debt obligations - CDOs - then others followed that template on down to when yes, even the GSEs were playing in the pool.
Secondary Cause: Mortgage-backed securities
Secondary Actors: Investment banks
But even here, the GSEs cannot yet be considered a secondary cause of the crisis. No, in a way that was just briefly highlighted in the video, these savvy financial investors looked for ways to protect the trillions of dollars they had on the line. In a word, they looked for insurance. AIG was only too happy to step in and play that role, because they too had a lab of whiz kids, financial engineers who seemed to be able to spin straw into gold! AIG walked into the mortgage-backed securities casino and loudly announced, "We're covering all bets!"
Bells rang as bankers lined up to buy insurance on policies AIG never dreamed of having to pay out because - as we all know - nothing bad ever happens in a housing market.
Wait, that doesn't sound right. But that is how these financial wizards acted.
Tertiary Cause: CDS
Tertiary Actor: AIG
Perhaps, perhaps at this point, we can begin to assign blame to Fannie and Freddie, but in truth, don't they appear more like reactors, as opposed to actors? They saw a fabulous money train pulling out of the station - loaded up with their product - mortgages. Wasn't their headlong dive into the swamp more driven by envy as opposed to the licentious larceny of the banks and the narcissistic desires for acclaim of Alan Greenspan?
Perhaps Dante's Inferno provides us with the only means by which to properly divide responsibility for this calamity across all of the actors before us?
Energy consumption is a prime indicator of wealth.
The USA became the world's largest economy - as well as the arsenal of democracy - because of our cheap and plentiful supplies of crude oil. Britain had to maintain a global empire to sustain her industrial revolution and that - eventually - became too costly. And if Germany entered WWII with revenge on her mind, then Japan entered with the more prosaic notion of obtaining access to the oil rich islands of Indonesia. And by mid-century, the US could see that our own interests in imported oil - primarily from the Arab nations of the mid-East - were on a path that only headed upwards.
So, while capitalism does require some degree of mania and the periodic bubble associated with them, there is a quantitative difference between a bubble built on some as ephemeral as appreciating home values and one built on something core to economic growth - like energy.
Heck - even the excesses of the internet bubble led to the creation of fine tools like 'Vimeo', which we are using even unto today to review a report on the rise and fall of the first post-internet bubble!
In sum: capitalism requires bubbles - or at least - they have always been present! Alternative energy is at least more core to our economy than real estate, so that might be the best thing for us all.
motionographer.com/2009/02/20/the-crisis-of-credit-visualized/
Can you tell me what software used?
I do have to say I was kind of shocked at your not-too-subtle implication that having more kids is an accepted indication of being financially irresponsible. In the world I live in, it's the more well-to-do and financially responsible families who are able to have more kids. The families that struggle financially only have 1 or 2.
I wish you might have chosen a different visual indicator of financial irresponsibility. It would be nice if you could reconsider that.
But other than that, outstanding job. Thanks for the time you put into this!
He also depicted the people smoking, but that isn't the only indicator of financial irresponsibility either. And what of the slurpee cup the dad was holding? Are we to assume that if we buy fountain drinks that we are going to default? And what about the size of the people? Are fat people going to default more often than skinny people? The graphic was just meant to depict a number of things that can illustrate poor choices that imply other things. I think you are reading way too much into it. The point was made and made well. I wouldn't change a thing. His illustrations are meant to all look like stereotypes, which is why the images got fatter the richer they got. It isn't meant to be taken as seriously as you seem to have taken it.
Certainly, depicting the generic banker or investor as an overweight mogul has roots in Nast's "Tammany Hall" cartoons of the 19th century. And that lends the caricature the credibility and authenticity of satire. In addition, we recognize that these corporate characters are more institutional than individual, and so they benefit from a kind of anonymity.
The "family," however, is neither institutional nor corporate -- it is human...which is what makes this crisis so personal. Ironically enough, considering the upscale preoccupation with fitness, the depiction of the banker may be less "accurate." But the depiction of the family merely comes across as ad hominem and a bit mean-spirited.
Otherwise, bravo!
Disagreeing with C Chambers, I have to say in a world where resources are disappearing quickly, where the highest use of energy per capita takes place in the US, a country where many are eager to blame China but shun a plan for itself concerning population control, I'd say having a lot of children IS a little irresponsible in this day & age, which is unfortunate but true.
Can you please post the sequel as soon as possible? I'm kind of freaking out here.
Thanks so much for that. posted it on facebook.
btw. like how you exagerated the design elements like angle of houses, people & accessories etc. Really nice work!
Thanks again for such good work.
youtube.com/watch?v=Da6qckWgsL4
You need Billy West to narrate.
Am I wrong? Why the woman's hair and the man's tattoo?
I'm sorry to pick on one questionable part of what was an overall excellent video.
My guess is that YOU immediately thought he meant poor people because you saw a family with a fat, smoking, drinking dad, 5 kids and a smoking mom with a baby on her hip. Guess what that makes you?
Now, let's say you were creating something, rather than just criticizing, and in this hypothetical something, you needed to illustrate the existence of people with a pattern of making poor financial choices represented by one family. How would you do it differently to keep from piquing the sensibilities of people like you? That might be a useful comment to make.
By the way, Mr. Jarvis, the bankers are all very, very fat. That offends me. Why do you hate bankers?
I went from knowing pretty much nothing about the credit crisis to a good understanding, just by watching this video. Nicely done!