Yesterday’s real estate blog article on the $700B Government bailout of the financial markets created some good discussion. The article focused on why it was critical to the United States that we do the bailout, but it did not go into great detail as to how we ended up in this position.
There has been a great cartoon-style presentation roaming around the email system for the past year that does a humorously great job explaining how we got here. It is unsigned, so we will just give credit to “Author Unknown.” Please note that if you receive this through email, most of the blog will be missing. I strongly recommend that you click-through (click on the title of this message) to the actual blog site so that you can enjoy the long, but excellent cartoon and summary.
Each of the following pictures can be enlarged by clicking on it. I will warn the reader that the language is somewhat crass, but I am sure that worse things were spoken during the real events that the cartoon depicts.
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So basically, we saw an industry grow out of control and what little controls that were in place (the rating agencies) did not put much consideration into how all the new subprime loans would affect the default rates that they were using to rate the loans. These loans had less than 1/2 their expected value, so Commercial and Investment Banks saw their portfolios devalued almost “over night,” which caused them to stop buying and also caused their investors to start pulling money out of their banks. When Commercial and Investment banks stopped buying loans, Mortgage Banks were then stuck with loans they planned on selling for operating capital. Now they too were out of cash and that takes us to where we are today. The final graphic shows the basic process.
So, what do you think of all of this? Do you think the entire U.S. Economy will come to a complete stop without the bailout? I’d love for you to share your thoughts in the comments section on the blog!<–>
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{ 16 comments… read them below or add one }
I have to say, this is the best explanation of what caused this giant mess. Thanks.
I don’t think the problem could be summed up more accurately or succinctly. After reading that, I find it even harder to rationalize the proposed Bail-Out.
good comic, now i understand that everyone made mistake after mistake after mistake trying to make money out of crap.
An explanation of what happened to the economy, in a format I can appreciate. =D Nice job.
I usually enjoy and appreciate the info you have on the blog. I must say I do NOT care for the profanity in the cartoon. I think this is extremely unprofessional to send that out. I no longer wish to receive e-mails from this blog, please remove me from subscription asap.
Bill, Dave, Bob, and Brian: Thank you and I agree that this really gives you an appreciation for how this all came about, and that is why I made the tough decision to post something on the Tallahassee Real Estate Blog with vulgar language imbedded within.
Tim: I am sorry that 1 post out of 153 makes this blog “bad,” but I stand by my reasons for including it. I gave an appropriate “warning” about offensive language, but again I have not found anything that better explains this whole financial mess that we are in. I wish you the best and hope you reconsider and come back from time to time.
Tim, get a life. there is swearing on the internet- get over it. people who get offended by language are retarded. just because of your post, I’m subscribing to this blog and I swear I will read it every damn day.
Tim… You’re on the internet… profanity happens.
Thanks Ian and “Slacker.” It turns out that yesterday was the most active day we have ever had on the Tallahassee Real Estate Blog, with over 4,400 visits, so I guess while the cartoon was a bit vulgar, many people understood its message.
This is a good article. It reminds me of other scandels in American history. During the railroad era there was Credit Mobelier, then the homestead frauds, then Teapot Dome scandel, then the S/L failures 1980s and now this. Do we need to read history and learn? Government seems to be the big problem not the solution- Let the free market regulate itself….
Thanks Norman. You would think that we could be smart enough to look at our history and learn from it…. but apparently we aren’t.
Nice job
plain and simple.
Thanks DB. It sure tells the story.
good comic, now i understand that everyone made mistake after mistake after mistake trying to make money out of crap.
Good explaination Joe. Bad things are just Bad…its better you realize them earlier and get rid of them.
I find you blog very informative for my readers, im linking it!
Have a nice day,
Looking forward to some great posts by you ahead.
Regards,
Indian Equity Investment Guide.
Thanks