Summary

Before:

Summary of Crisis of Credit visualized

John Jarvis’s video Crisis of Credit visualized presents the origin of the credit crisis and its effects.

It started due to the 9/11 dot.com that caused 1% interest rates. The investors refused to buy treasury bills from the Federal Reserve and looked for other options while banks could cheaply borrow money. This caused them to expand due to leverage.

Because of investment interest, the banks decided to link the investors to the homeowners by selling mortgages. A house-wanting family would contact a broker, who contacted a lender. They bought a housing mortgage, which the lender sold to an investment banker. The banks then organized their mortgages into safe, okay and risky slices called collateral debt obligation. They sold them to other investors. If homeowners defaulted on their debt, the investor got the house; it was profitable due to rising prices.

The turnaround came when lenders started giving mortgages to irresponsible homeowners who defaulted on their debt. More houses became vacant, which caused housing prices to drop, ending in investors owning worthless houses. They refused to buy more mortgages, which cause the economy to freeze and result in bankruptcy. Homeowner investment plummeted too, leading to a collapse of the economic system.

After

Summary of Crisis of Credit visualized

Jonathan Jarvis’s video “Crisis of Credit Visualized” presents the origin of the credit crisis and its effects.

It started due to the 9/11 and dot.com that caused 1% interest rates. Those were passed to keep the economy strong. Investors refused to buy treasury bills from the Federal Reserve and looked for other options while banks could cheaply borrow money. This caused them to expand due to leverage.

Because of investment interest, the banks decided to link investors to homeowners by selling mortgages. A family seeking a house would contact a broker, who contacted a lender. They bought a house using a mortgage, which the lender sold to an investment banker. The banks then organized their mortgages into safe, okay and risky slices called Collateral Debt Obligations. They sold them to other investors. If homeowners defaulted on their debt, the investor got the house; which was also profitable due to rising prices.

The turnaround came when lenders started giving mortgages to irresponsible homeowners who defaulted on their debt. More houses became vacant, which caused housing prices to drop, ending in investors owning worthless houses. They refused to buy more mortgages, which caused the economy to freeze and result in bankruptcy. Homeowner investment plummeted too, leading to a collapse of the economic system.