The Financial Meltdown

We’re still suffering from the 2008 financial meltdown, and its legacy is one of the defining themes of the upcoming election. Yet most voters know little more about it than a smattering of jargon about derivatives, subprime mortgages, and foreclosure.

That’s a shame, because it’s a gripping story of compounded lunacy. Here’s my attempt to explain it.

First, if you liked this video then please share it. I worked my ass off putting it together and it’s a wonder my partner didn’t leave me out of neglect.

If you want to learn more, check out Michael Lewis’s terrific and reader-friendly book, The Big Short. That’s the book that made me think, Everyone should know this! and moved me to make the video.

For a shorter, more technical, less story-based explanation, try the International Monetary Fund’s Global Financial Stability Report, April 2008, especially Chapter 2.

When I was struggling with the waterfall animation, this amazing public domain graphic was a huge help.

I pulled data from a number of sources to make the graphs in the video. The attributions in the video are hard to read, so here are the links for the the housing index, the delinquency rate, and total household real estate value.

I’m solely to blame for all but two of the graphics in the video: I adapted the house and the spigot from images at Microsoft’s free clip art site.

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19 comments to The Financial Meltdown

  • 1
    Palmer says:

    I’m so sorry to point this out, but in one of your first graphics you spelt “subprime” as “suprime”.
     
    Other than that I understood everything you said clearly and succinctly.

  • 2

    Crimony! No wonder the whole damn thing collapsed!

  • 3
    Allen says:

    Thank you for putting this video together.  It is crazy that people are not serving time for this!

  • 4
    Deeelaaach says:

    Well, thanks to you and your long suffering (?) partner!  That was a dousy of a video (I *so* date myself).  And yes, I watched it until the end. 

  • 5
    King Mott says:

    Brilliant; I am using this in a class this week: political theory….
     
     

  • 6
    Mrs. Chili says:

    I love you.  That is all.

  • 7
    Jason D says:

    OMG Rob this is just plain insane! (The Crisis, not YOU)
    Thank you for putting this into layman’s terms.
    I feel gross that I used to be a Chase customer. So glad I went to a credit union.
    I am sharing this EVERYWHERE. 

  • 8
    RayM says:

    Excellent, just excellent. Let’s just hope that the Great American Public isn’t about to encourage yet another round of this criminal madness.

  • 9
    JayP says:

    I’m so glad that you are calling this problem for what it actually is, and this my friends is where republicans and democrats should be calling out the big banks together, unified, against the likes of Goldman Sachs, but what’s worse is we borrowed money (Bailout) from the Fed, run by the same banks at interest, to bail them out of the problem they created on purpose to make more money, and we fell for it. It’s happening all over the place, but it usually comes back to just a few big players. Follow the money.
    Now, go do some research on the BP oil spill and follow the money, and we will see just how deep this rabbit hole goes.

  • 10
    clayton says:

    I don’t know whether to regret watching that or to be glad I watched that, but, either way, I think I needed to watch that.

  • 11
    Jaime says:

    Rob,
    Thank you. Clear, concise, and comprehensible. Previously, I had only a vague inkling of the layers – but now can start to appreciate the true depth of the rabbit hole. Thanks for the “red pill”. The lack of criminal prosecution is galling and reprehensible. I appreciate your efforts and those of the members of BTB to help provide accessible explication; You are facilitating understanding, outrage, and hopefully calls for accountability and change.
    Jaime

  • 12
    TomTallis says:

    I’ve shared this high and low.  People need to do perp walks for pulling off these frauds.  Excellent, work, Rob!

  • 13
    Roosterbear says:

    You say at the end that you don’t have a solution, but the most important step in fixing a problem is identifying it. What’s clear after watching your video is that trusting the folks who got us into this mess to fix it is the WRONG ANSWER. That’s a good place to start…
     
    Thank you for the hard work in putting this together. You have such a talent for taking complicated issues and breaking them down into easily understood pieces, and we need lots of that right now.

  • 14
    Jayanta says:

    The video is largely correct and nicely made, but it has a flaw and a major flaw:

    Minor Flaw:

    Yes, the banks did give out bad loans but not necessarily were these loans designed to fail. The analogy of builders building houses to fail is a bit harsh. The banks were making enough money giving out the bad loans, I don’t think most of them were giving out the loans thinking “I will make this loan bad so that I can make money insuring it”. Some of that did happen, for example Goldman did it, but it wasn’t the norm. Not to say the banks were not guilty, but that that devious.

    Major Flaw:

    The author is quite slanted in his implicit assessment of Obama Administration. He gives all the standard talking points about why the bailout was necessary, such as “firms would need financing, people would lose their jobs otherwise” etc. This totally glosses over the crony capitalism system that is at the heart of the issue. Basically the video says that it was banks which were guilty and gives the political establishment a free pass. This is ridiculous.

    The author’s bias for the Democrats is plainly visible. The reason for the crisis was the nexus between the industry and the political establishment. First the Republican establishment under which the crisis was created, and next the Democratic establishment under which the industry used the government to extract taxpayers’ money. It is fine to say that the banks took insurance, but the reward for these actions only came when the banks’ friends (think Tim Geithner) gave taxpayer money to the insurance firms so that the banks would get paid.

    The video buys the argument that the bailout was necessary because after all the later stages of the bailout was done by the Democrats. And Obama handsomely rewarded a prime force behind the bailout of the banks with the Treasury Secretary job. Note that Goldman was Obama’s second largest contributor in 2008, giving him $800,000, about 4 times what it gave McCain (after giving Bush about 3 times of what it gave Kerry in 2004).

    Under essentially similar circumstances, Chancellor Merkel told the banks to take a hike. When Greece got close to default, she made the banks take a writedown of about 50% or more on their loans. What is the difference between Merkel and Obama? One gets donations from the industry and the other doesn’t.

    Bill Clinton made $100 million from 2000 to 2008, and let me assure you that money did not come from the middle class that he publicly champions. It comes from the industry. The problem for the US is that both the Democrats and the Republicans have been “captured” by the finance industry.

    Overall the video does disservice as it excuses the political establishment and therefore contributes to the continuance of corruption.

  • 15
    Jayanta says:

    Sentence should read “Not to say the banks were not guilty, but not that devious.”

  • 16
    robtish says:

    Jayanta, thanks for the kind words, but I do take issue with your criticisms.

    On the minor flaw: I did not say the banks were giving out bad loans hoping they would fail. Rather, I said some investment banks were creating bad mortgage bonds and CDOs hoping they would fail. This has been well-documented by the Senate.

    On the major flaw:  I don’t see why you call my comments on the bailout an assessment of the Obama administration. Bush, of course, is the one who bailed out the banks.  Thus your evidence that I’m biased in favor of Democrats should actually be read that I’m biased in favor of Republicans, something I can assure you is not true. That’s an indication that your ad hominem reasoning is pretty confused.

    Further, arguing that a bailout was beneficial is not the same as endorsing every aspect of it. All of your criticisms could be true without contradicting the conclusion that the bailout was on balance a good thing.

    Finally, at no point in the video do I “excuse the political establishment.” In fact, I’d be quite willing to agree that politicians across the political spectrum have been captured by the finance industry. I only have so much time, however, and a 14-minute video is already about 10 minutes too long by youtube standards. I chose to focus on the transactions made by Wall St banks in the run-up to the meltdown. A video on the political machinations would be valuable as well, and I encourage you to make one.

  • 17
    Jayanta says:

    Reading my post again, I find the end “Overall the video does disservice as it excuses the political establishment and therefore contributes to the continuance of corruption” too harsh. I believe you are honest and well-intentioned and I am sorry if a reader received a different impression.
    Anyway, my point is that the nexus between the industry, the regulators and the political establishment is essential to understanding the entirety of the financial crisis. You do a good job of explaining how CDOs worked, my point was that the big picture was not being presented.
    Of course, the banks are going to find whatever avenues possible to make quick profits. CEOs are enriched by quick profits, Chuck Prince and Stan O’Neal left their firms close to bankruptcy but personally rich. It is the job of regulators from preventing banks from acting in this manner.
    Regulators do have the power to stop banks from acting the way they did, most importantly by choking off the supply of “easy money”. You can read a NYT article about how the head of the Indian central bank prevented a similar crisis in India: http://www.nytimes.com/2008/12/20/business/20nocera.html
    So the big picture includes the actions of the banks, the regulators and the politicians. What is the solution for this dysfunctional system? I am writing a book which is about one-third finished, that’s my contribution.

  • 18
    Michael says:

    This is remarkably good.  

  • 19
    Spunky says:

    I finally got a chance to view. Bravo Rob! Excellent anaolgies + visual aids = my first chance at understanding this God-awful mess. I’ll need to watch several more times to fully digest it all.

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