Visualizing the credit crunch

2008-09-18

in Economics, Geek stuff

So far, the credit crunch has wiped 1.86 trillion dollars off the balance sheets of investment banks, commercial banks, financial services companies, asset managers, and investors.

This graphic, produced by the New York Times, visualizes the losses, showing how unevenly distributed they are. The whole thing is really quite dramatic, even for those of us with a limited interest in finance.

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{ 8 comments… read them below or add one }

. September 18, 2008 at 7:44 pm

THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS
By Nassim Nicholas Taleb

Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the “logic of science”; it is the instrument of risk-taking; it is the applied tools of epistemology; you can’t be a modern intellectual and not think probabilistically—but… let’s not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let’s face it: use of probabilistic methods for the estimation of risks did just blow up the banking system).

The current subprime crisis has been doing wonders for the reception of any ideas about probability-driven claims in science, particularly in social science, economics, and “econometrics” (quantitative economics). Clearly, with current International Monetary Fund estimates of the costs of the 2007-2008 subprime crisis, the banking system seems to have lost more on risk taking (from the failures of quantitative risk management) than every penny banks ever earned taking risks. But it was easy to see from the past that the pilot did not have the qualifications to fly the plane and was using the wrong navigation tools: The same happened in 1983 with money center banks losing cumulatively every penny ever made, and in 1991-1992 when the Savings and Loans industry became history.

. September 18, 2008 at 7:47 pm

” The graph above shows the fate of close to 1000 financial institutions (includes busts such as FNMA, Bear Stearns, Northern Rock, Lehman Brothers, etc.). The banking system (betting AGAINST rare events) just lost > 1 Trillion dollars (so far) on a single error, more than was ever earned in the history of banking. Yet bankers kept their previous bonuses and it looks like citizens have to foot the bills. And one Professor Ben Bernanke pronounced right before the blowup that we live in an era of stability and “great moderation” (he is now piloting a plane and we all are passengers on it). “

. September 19, 2008 at 1:09 pm

Banks, Firms, and Houses
Deciphering the terms in the financial crisis coverage.
By Abby Callard
Posted Thursday, Sept. 18, 2008, at 6:29 PM ET

On Tuesday, the U.S. government announced that the Federal Reserve, the nation’s central bank, would loan $85 billion to American International Group, an insurance firm, for fear that other financial institutions, such as investment banks and securities firms, would go belly-up in its wake.

What are all these banks and other financial institutions in the news?

. September 19, 2008 at 1:31 pm

Bailout will cost hundreds of billions: Paulson

JEANNINE AVERSA AND JULIE HIRSCHFELD DAVIS

The Associated Press

September 19, 2008 at 10:24 AM EDT

WASHINGTON — U.S. Treasury Secretary Henry Paulson says the bold action needed to take troubled assets off the books of financial organizations will cost hundreds of billions of dollars, but doing nothing would cost far more.

Mr. Paulson said Friday that he plans to work through the weekend with congressional leaders to reach agreement on a plan that would address the root problems of the financial crisis gripping the country.

. September 20, 2008 at 1:39 pm

Rescue plan price tag: $700-billion

JULIE HIRSCHFELD DAVIS

Associated Press

September 20, 2008 at 1:20 PM EDT

WASHINGTON — The Bush administration is asking Congress to let the government buy $700-billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press.

The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would also raise the statutory limit on the national debt from $10.6-trillion to $11.3-trillion to make room for the massive rescue.

. September 21, 2008 at 4:04 pm

Sunday, 21 September 2008
The Big Bad Bank Bailout

For my first ever blog, I thought I’d tackle a nice, easy subject – the proposed bailout of the banks by the Feds. I’m no expert on this, but I thought I’d publish my non-technical understanding of the situation in the hope it may help others. Most of this stuff has been gleaned from reading Calculated Risk.

First, a recap of the problems facing the economy. As we all know, the bottom has fallen out of the U.S. real estate market, which has left the banks with a lot of bad debt on their balance sheets, which in turn means they don’t have a lot of cash to lend out. So the economy is grinding to a halt as businesses are unable to acquire new finance, or even to roll over existing loans.

. September 21, 2008 at 11:30 pm

Who benefits?

SOME may worry about politics and religion. I worry more about politics and mythology, by which I mean populism. The prospect that hundreds of billions of public and unraised dollars will be applied to Wall Street’s woes tempts the populist in each of us. And while we can forgive those who succumb, we shouldn’t believe them. Politicians, pundits and presidential candidates turned populist last week, perpetrating the myth that innocent taxpayers might be expected to bail out the people whose bad decisions have cost so much to correct. Horsefeathers.

. February 22, 2009 at 11:46 pm

The Crisis of Credit Visualized is an animated short that explains the economic crisis by giving it form. It is also an argument for how designers have the ability to see a complex situation, then turn around and communicate it to others. By giving graphic form to the credit crisis, it becomes comprehensible. Not only do economic activities take shape, but new relationships can emerge between these shapes.

Via Free Exchange

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