Belmont Club

How the subprime mortgage collapse happened

As described by the Institute of Chartered Accountants in Australia. If you’re still confused about what happened, it’s a good primer. Look for the chart and the narrative as it follows the mortgage from Mr. and Mrs. Jones to their local bank, and their local bank to an investment bank and upward. And what happened.  The chart is a keeper.

Some commenters justly note that the presntation leaves out the crucial role of Fannie and Freddy in amplifying the disaster. Maybe I can find material that will complement the shortcomings of this primer. But even as is it does show the interrelatedness of the financial world and illustrate how pursuing an apparent social good like “affordable housing” can really lead to a nightmare. What formerly prevented failed social engineering schemes from having a global impact was the disconnectedness of command economies.  They were self-limited in the amount of havoc they could cause. But in a world linked by vast financial systems and information architctures the consequences of an ill-conceived plan can cascade progressively. The problem with relying on more regulation to solve the problem is that it puts the very same political class which generated the problem in charge of preventing it.