The Crisis of Credit Visualized
Still don’t understand why we’re in a recession? Is all that mumbo-jumbo about sub-prime mortgages, collateralized debt obligations, frozen credit markets, and credit default swaps making your head spin? The Crisis of Credit Visualized explains it all with simple pictures, in plain English.
For his thesis work, creator Jonathan Jarvis “explores the use of new media to make sense of an increasingly complex world.” With these videos, he succeeds beautifully. In an increasingly chaotic media landscape, sometimes only a college student’s YouTube upload can make sense of anything.
(Via Bluejackal.)
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Good thing, Philippines does not have that kind of system
Unfortunately, the Philippines is still affected. Wall Street’s greed has hurt us all. 🙁
I may not exactly grasp economic terms and the mathematical wizardry to get CDOs, but what constantly bothers me with the schemes involved is that it is all liquid money being played around with. The videos then seem to point that the crux of the problem lies directly in having a CDO itself…
I hope I got it right.
The problem is people selling bad debts like it’s not their problem.
This is just the beginning. After the subprime mortgages come Option ARMs and Alt As, and the rest of the 500+ trillion derivatives market, including CDOs.
These are basically debt swaps, i.e., lending to one and then using as leverage to borrow, together with making all sorts of side bets. People were warned about this almost two years ago but they didn’t listen, insisting on some Internet future where blogs will replace newspapers, the Internet will replace TV, and the future will bring lots of nice stuff ranging from MMO games to more Hollywood blockbusters and cosplay. All of these goodies and forms of entertainment are heavily based on credit and surplus income, and when both start drying up….
Right now, deflation is taking place at incredible rates, with shipping and production of various products (from processed oil to semiconductors to cars) dropping worldwide, leading to high unemployment, and possibly more internal conflict worldwide due to loss of jobs, lack of food and other products due to production drops, etc.
When demand picks up once more and production doesn’t follow due to economic contraction, then we might have hyperinflation. And when oil production starts peaking in the Cantarell and Ghawar oil fields, then we will probably have to learn to plant our own food.
Of course, others can argue that we shouldn’t worry about these things, just as they kept insisting more than a year ago that this economic recession would not take place.
Please don’t pin this recession on tech. As you yourself point out, the credit crisis was brought about by douchebags in the financial sector swapping bad housing debts.
I’m not pinning it on tech. What I’m saying is that tech and many other things, from Hollywood movies to electronic gadgets connected to them to costume parties and Internet sites that talk about or market them are all heavily dependent on credit extended by private banks and companies that relied heavily on the derivatives market. With the credit crunch, industrialized countries are seeing their economies contract significantly with likely no recovery, consisting of major drops in production and shipping coupled with high unemployment. Given such a situation, mass entertainment together with tech gadgets might not last.
After economic recession may deflation, then hyperinflation, then a resource crunch, where we will have to localize and plant our own food.
Of course, we can dismiss such points and assume that things will be fine eventually, just as we dismissed warnings that were made about a major global recession almost two years ago.
Just because the banking industry fucked up doesn’t mean all other industries should just give up.
They have to because they need commercial paper from banks and consumers need credit to buy what they sell. That is why most industries are falling apart worldwide, together with retailers, the shipping business, and so forth.
The situation is now so bad that everyone from Soros to Greenspan now argue that what will happen during the next few years will make the Great Depression look like a walk in the park. And the amount spent on bailouts and economic stimulus packages will look like peanuts compared to what will hit us next through the derivatives market.
By the way, not only private banks but many large corporations in several industries were also wheeling and dealing in the derivatives market, either directly or through the banks.
All these started only with subprime mortgages that went toxic, leading to a major freeze in the commercial paper market and even interbank loans. The next that will hit may be much bigger but still only the tip of the iceberg compared to the whole derivatves market:
http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml
After that, we may see a fallout from CDOs and other exotic financial instruments, the boomers cashing in as they halt investments, more deflation possibly leading to a collapse of the dollar, other countries besides Iceland falling apart, the gradual appreciation of gold, hyperinflation caused by economic contraction, and probably even more riots or unrest due to food and other shortages.
i have watched Zeitgeist Addendum and it tells the same story but Addendum tells about the money that we holds right now is actually debt from the Federal Reserve.
Only around 3 percent of U.S. money supply consists of paper currency printed by the government. The 97 percent is created by private banks through credit. The money supply increases significantly because of fractional reserve ratios and interest. In the long run, the whole capitalist system is not sustainable because it requires ever-increasing amounts of income driven by increasing money supply to use up more resources to manufacture more products in order to acquire ever-increasing amounts of income. And if it’s not manufactured products, businessmen can make money by simply playing in financial markets.
Right now, we are seeing financial markets fall apart, and we have not experienced a fallout from much of the derivatives market yet. If those hit, the damage may be much greater than that of subprime mortages, which right now has led to massive drops in production and exports worldwide. For example, Japan has now experienced a 46 percent drop in exports and at least 60 percent in car sales. Similar numbers appear in China and in other export-producing countries, while Germany, the U.S., and others are seeing large portions of their liquid assets vaporizing.