A Picture Guide to the Financial Crisis

One of the advantages of putting yourself out there in the blogosphere for all to see is that you often end up hearing interesting things, meeting fascinating people, and discovering helpful resources.

Thanks to a note from David Hendrickson, a professor of political science at Colorado College, I learned about a great resource -- what he calls "a picture guide to the financial crisis." David -- who, thankfully enough, is not an economist -- originally put this information together for his students but has since published it in a form he describes as a "blogbook."

Here is the introductory entry to Cause for Depression, entitled "The Overall Idea":

Think of it as a cartoon guide to the ongoing earthquake in the world of high finance. Through pictures, we will try to understand the dimensions of the current financial crisis--its origins and causes, its likely consequences, its potential remedies.

The "Labels" in Blogspot allow us to construct a chapter organization that the reader should approach as she would a book. By hitting on the topics under "Labels," the presentation will appear in an orderly fashion.

Blogspot is not made for blogbooks, though it is easily adaptable to that purpose. Ordering within each of the chapters depends on time of posting, so my time stamps are not necessarily indicative of the actual time the material was posted. I have altered them to allow for an orderly presentation. If it seems to matter, I will post the date of composition and updates in the entry. The initial foray of posts was made in mid-October 2008.

In seeking to understand the crisis, we need to begin with the credit mechanism. We are living through the bust of one of the greatest credit cycles of all financial history. In order get a handle on the seriousness of the bust, we must register the mania that fed the boom.

We’ll first look at some measures indicative of the financial turmoil. Then we examine general conditioning circumstances: the role of the housing boom and bust, the general growth of credit market debt, the explosion in derivatives, all of which are relevant in considering how much insolvency exists within the financial system. That question--are our financial institutions insolvent?--in turn is vital in assessing the wisdom of various bailouts and rescues, the opportunity costs associated with the government-mandated maintenance of the "FIRE" sector (Financials, Insurance, Real Estate), and how the global imbalances that have marked the last fifteen years are likely to change. I conclude with some lessons. The final entry is a collection of paper topics for interested students to consider.

Where possible, I’ve tried to indicate where readers can find updated sources of information for the material presented here. Given my harsh view of "derivatives," I'm obliged to say that this compendium is almost entirely derivative. I’m deeply indebted to my blogroll for ideas, inspiration, and many of the charts contained herein.

So, if you've read thus far, go now to "Financial Stress" in the "Labels" section.

Comments

[roger]

In this enchanted & perverted world we are now seeing several
Countries on the verge of bankruptcy,being a firm believer in
Hegelian dialectics (turned right side UP ,back on its head)
I believe these are the first simmering bubbles before the full
rolling boil.The dumb & uninformed will continue to blame the
"housing bubble" and will never understand that money being
value has acquired the occult ability to add value to itself
and that this is at the heart of the problem.