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I hate when my economy  melts down Alice Mercer cc licensed except iStockphotos where noted http://flickr.com/photos/zesme...
What the heck happened? From http://www.istockphoto.com/
Money goes looking for a home <ul><li>In the aftermath of various bubbles in the 1990s, there was a lot of money in the “m...
The new home for those $s... … your home (or your neighbors). From http://www.istockphoto.com/
The Rule they ignored…
Pile in markets! http://flickr.com/photos/define23/2610038054/
More money, more money… Source: NYT  ( http://www.nytimes.com/2007/03/11/business/11mortgage.html?partner=permalink&exprod...
“ Who turns down money?”  said the home buyer/owner From http://www.istockphoto.com/
“ Hey, they can refi in a few years, and ARMs give me a better commission, besides I’m not carrying it.” said the Mortgage...
“ Hmmm, I think I have an idea!” s aid the Investment Banker   Hmm, didn’t they try that here? http://en.wikipedia.org/wik...
Slice ‘em up http://flickr.com/photos/cayusa/2173546553/
Re-package ‘em
and build a giant house of cards… out of housing http://flickr.com/photos/tjflex/1347490869/in/photostream/
Does anyone like the SOB who bets against the shooter in craps? “ Any number of speculators, who do not own the original s...
This isn’t heading anywhere good Source : Bureau of Economic Analysis via Sequoia Capital (http://tinyurl.com/3ttyng)
But I can’t pay the mortgage! Data from WaPo http://tinyurl.com/3kotw9 and FRB “ Normal” level All  Mortgages Sub Prime Mo...
Securitization brings multiple creditors with multiple “approaches” to renegotiating loans Hey, I’m in an ‘A’ rate tranche...
The loans become “road kill” http://flickr.com/photos/suzanneandsimon/1829577294/
The Mortgage Backed Securities became cow patties http://flickr.com/photos/jganderson/2387722255/
And the derivatives that were supposed to insure the whole thing are radioactive http://en.wikipedia.org/wiki/Image:Nagasa...
The Risks of Large Complex Systems <ul><li>(Benoît) Mandelbrot…looking at how markets trended…discovered …tail risk…the po...
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Economic Meltdown

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Transcript of "Economic Meltdown"

  1. 1. I hate when my economy melts down Alice Mercer cc licensed except iStockphotos where noted http://flickr.com/photos/zesmerelda/451715214/
  2. 2. What the heck happened? From http://www.istockphoto.com/
  3. 3. Money goes looking for a home <ul><li>In the aftermath of various bubbles in the 1990s, there was a lot of money in the “market” looking for an investment with high yields and low risk. </li></ul><ul><li>Instead, it ended up being money in search of a bubble to invest in. </li></ul>
  4. 4. The new home for those $s... … your home (or your neighbors). From http://www.istockphoto.com/
  5. 5. The Rule they ignored…
  6. 6. Pile in markets! http://flickr.com/photos/define23/2610038054/
  7. 7. More money, more money… Source: NYT ( http://www.nytimes.com/2007/03/11/business/11mortgage.html?partner=permalink&exprod=permalink) and S&P Press Release (http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_082653.pdf)
  8. 8. “ Who turns down money?” said the home buyer/owner From http://www.istockphoto.com/
  9. 9. “ Hey, they can refi in a few years, and ARMs give me a better commission, besides I’m not carrying it.” said the Mortgage Broker From http://www.istockphoto.com/
  10. 10. “ Hmmm, I think I have an idea!” s aid the Investment Banker Hmm, didn’t they try that here? http://en.wikipedia.org/wiki/Long_term_capital_management We could reduce risk, by spreading it all around. Complexity is good! From http://www.istockphoto.com
  11. 11. Slice ‘em up http://flickr.com/photos/cayusa/2173546553/
  12. 12. Re-package ‘em
  13. 13. and build a giant house of cards… out of housing http://flickr.com/photos/tjflex/1347490869/in/photostream/
  14. 14. Does anyone like the SOB who bets against the shooter in craps? “ Any number of speculators, who do not own the original security, can place side bets on whether that security defaults.” WaPo http://tinyurl.com/3kotw9 From http://www.istockphoto.com
  15. 15. This isn’t heading anywhere good Source : Bureau of Economic Analysis via Sequoia Capital (http://tinyurl.com/3ttyng)
  16. 16. But I can’t pay the mortgage! Data from WaPo http://tinyurl.com/3kotw9 and FRB “ Normal” level All Mortgages Sub Prime Mortgages
  17. 17. Securitization brings multiple creditors with multiple “approaches” to renegotiating loans Hey, I’m in an ‘A’ rate tranche, I don’t have to make a deal I’ll take the risk! I got this cruddy MBS didn’t I? I have no idea what to do, or why I bought this lousy bond in the first place Talk to my lawyer! baaah We want our money! From http://www.istockphoto.com/
  18. 18. The loans become “road kill” http://flickr.com/photos/suzanneandsimon/1829577294/
  19. 19. The Mortgage Backed Securities became cow patties http://flickr.com/photos/jganderson/2387722255/
  20. 20. And the derivatives that were supposed to insure the whole thing are radioactive http://en.wikipedia.org/wiki/Image:Nagasakibomb.jpg
  21. 21. The Risks of Large Complex Systems <ul><li>(Benoît) Mandelbrot…looking at how markets trended…discovered …tail risk…the possibility of extreme events is higher than any of the standard models predict… -- Yves Smith on Bloggingheads http://bloggingheads.tv/diavlogs/14850 </li></ul>Photo: http://en.wikipedia.org/wiki/Image:Toppledominos.jpg#filelinks
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