credit-crisisThis might be a little too late as the global financial crisis appears to have stabilized prompting the economic soothsayers to predict a recovery before the year ends but here’s a great video that explains what really happened with the financial crisis that shocked the world like a massive asteroid, nearly toppling down the earth’s biggest and the mightiest financial institutions.

If you can spare a few minutes, of which I am certain you won’t regret, check this out :

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

The creativity of the financial institutions in concocting sophisticated deals that generated profits that looked like they came from the magician’s hat finally met its fate, one that wrought havoc to those players that played the game from both sides – financier and investors alike. When the stage came that  “those who can afford to buy a house already bought a house ( prime customers) ” the savvy deal makers focused their sights on “those who can barely afford a house” ( sub-prime customers), sold houses to them nonetheless, for if they defaulted on payments, the banks took ownership of the houses ( not a problem if the house value appreciates). Then came the proverbial “too much of anything is poison” phenomenon – too many owners defaulted, too many houses on the market brought the price down, even those good paying customers walked out on mortgages that were more than the worth of their homes that devalued so fast in a short span of time . In short, chaos reigned and financial institutions were saddled with tremendous loses as the result of the toxic mortgages they carried on their balance sheets. The big ones survived with government intervention but others collapsed into bankruptcy.

The experience is extremely painful and the economic fallout is still being felt by the world as we speak. I remember a TV interview with former Federal Reserve Chairman Alan Greenspan, when he was blamed for supporting the sub-prime mortgage strategy. He replied in a rather philosophical manner by saying that ” we will be talking about this thing again 10 years from now”. There is no antidote for man’s greed. As long as there is the motivation to make the most profit out of the smallest investment, man will continue to create new schemes in the high stakes game of risk vs. reward. These paradigm shifts will cause the bubble to burst every now and then. The turbulence it will create will be serious and may have life changing effects on society and people. But one thing is certain – we will survive, pick up the pieces  and continue our journey.

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