Economic Meltdown


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Economic Meltdown

  1. I hate when my economy melts down Alice Mercer cc licensed except iStockphotos where noted
  2. What the heck happened? From
  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. The new home for those $s... … your home (or your neighbors). From
  5. The Rule they ignored…
  6. Pile in markets!
  7. More money, more money… Source: NYT ( and S&P Press Release (
  8. “ Who turns down money?” said the home buyer/owner From
  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
  10. “ Hmmm, I think I have an idea!” s aid the Investment Banker Hmm, didn’t they try that here? We could reduce risk, by spreading it all around. Complexity is good! From
  11. Slice ‘em up
  12. Re-package ‘em
  13. and build a giant house of cards… out of housing
  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 From
  15. This isn’t heading anywhere good Source : Bureau of Economic Analysis via Sequoia Capital (
  16. But I can’t pay the mortgage! Data from WaPo and FRB “ Normal” level All Mortgages Sub Prime Mortgages
  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
  18. The loans become “road kill”
  19. The Mortgage Backed Securities became cow patties
  20. And the derivatives that were supposed to insure the whole thing are radioactive
  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 </li></ul>Photo: