A Simplified Explanation of the Credit Crisis

                                 
                                The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

This is a pretty simple explanation of what happened. The creator misses a few points though. First of all, don't believe the Wall Street lie that this was somehow the fault of the Fed, Fannie Mae, or the American homeowner. That's basically a banker going 75 in a 35, running over a bunch of people in his porsche, and then blaming the government for setting the speed limit so high. Yes, all of those played their part, but it was Wall Street greed and fraud that manufactured this crisis. As Steve Eisman, who made $1.5 billion shorting these CDOs said, "What-the entire American population woke up one morning and said, 'Yeah, I'm going to lie on my loan application'? Yeah, people lied. They lied because they were told to lie." Eisman and the others like him who made fantastic sums off this crisis weren't betting against people or the government; they were betting against the greed and mendacity of Wall Street.

Anyway, the author leaves out that Wall Street firms were deliberately gaming the ratings agencies. The agencies didn't actually know what was in these bonds; in a lot of cases they just went off the average FICO score on each. So the firms matched people with high FICO scores but short credit histories with people with low FICO scores to increase the average score, and get the agencies to rate this stuff higher. The high ratings then convince lay investors that the bonds are safe, and that's how the fraudsters manage to get away with selling financial instruments that were really just ticking time bombs.