A Visual Guide to the Financial Crisis: Part 1

VISUAL GUIDE FINANCIAL CRISIS "The notion of a bubble bursting and the whole price level coming down seems to me as far as a national nationwide phenomenon, is really quite unlikely," Alan Greenspan, Federal Reserve Chairman, 2003 Historically low interest rates Alternative investment after the dot-com crash Belief that housing is a safe and good investment "Housing prices never fall" "The idea that we're going to see a collapse in the housing market seems to me improb- able" John Snow, Treasury Secretary, Mania for home ownership 2005 Flip That House Media Flip This House Property Ladder Can't afford a house? Already own a home? Buy another Have no down payment? "Housing prices never fall" Refinance Can't make payments? Mortgage broker Inflated prices "It's impossible for prices to go down this year." Gary Watts, Orange Country Association of Realtors, 2006 Sub-prime loan Housing bubble "If you own your own home free and clear, people will often refer to you as a fool. All that Banks collect bad loans Home Ownership money sitting there, doing nothing." Anthony Hsieh, CEO Lending Tree, 2006 Pool and rename them Collateralized Debt Obligations Slice and dice them creating Secure AAA and BBB bond ratings using financial wizardry and more CDO's "overcapitialization" "At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." Ben Bernanke Federal Reserve Chairman, 2007 Banks sell these new "safe" investments to Other banks Everyone Cities and towns Pension funds Insurance companies OF 204936618 meanwhile... "Housing activity will remain healthy for some Mania over home ownership time to come." "We may see a blip up in foreclosures and delinquencies." Leslie Appleton-Young, Chief Economist, California Association of Realtors, 2005 David Lereah, NAR's chief economist, 2005 Overbuilding of homes Housing prices fall "The national media is reporting a housing bubble. Don't believe it." Too many homes Mortgages worth more than homes themselves "Housing is still the best invest- Dale Akins, Market Edge, 2006 "I think investors will have a good ment, without question." Stan Sieron, President, Illinois Assoc. of Default Homeowners can't reason to come pay mortgage out here and buy again." Jeromith Sutton, NAR Realtors, 2006 Investment Advisor, 2006 Lehman Brothers goes bankrupt Banks do not get paid Banks fail Washington Mutual seized, assets sold to JP Morgan Government rescues Fannie Mae, Freddie Mac Almost Government rescues AIG Merrill Lynch bought by Bank of America Wachovia bought by Wells Fargo Banks do not lend money CDO investors do not get paid 2093661 2036618 Crisis of confidence "We got a big problem." George W. Bush, September 26, 2008 Stock prices free fall 20493 GOVERNMENT BAILOUT OF 204936618 blog.mint.com wallstats.com HAHINAR OF 20493661 B