Financial crisis simplified (a whiteboard presentation)

Collateralized debt obligations (CDOs) are investment instruments that are partially to blame for the mortgage crisis. What, you say you don't know what CDOs are or why they matter? Don't worry, almost no one does (maybe that's part of the problem). But not to worry, Marketplace Senior Editor Paddy Hirsch goes analog to simplify and visualize the problem at the whiteboard in a 6-minute presentation he calls Financial Crisis 101: CDOs explained. I should have paid more attention in my finance class a million years ago; I had to watch this presentation twice, but you'll surely get it the first time. Nothing simplifies and illuminates like a good teacher at the whiteboard (and you don't even have to be an artist). I love whiteboards. Checkout the presentation below. For more information and more simplification of what CDOs are, listen to the Marketplace Radio broadcast and see the transcripts here. Enjoy.

Here's the money quote at the end after a good (albeit very simple) explanation at the whiteboard: "The fact is, we're in a mess of our own making." Indeed.

H/T Adam R.

Comments

[DK]

Great use of visuals to explain a complex situation - I guess the question remains is this: how do we (the customers/consumers) know if loans or mortgages or pensions etc are from the first or second champagne bottle...?

Thanks for sharing.

[Morten]

Great video!

Perhaps it could use a little more on the actual problem - repackaging of insecure "10% bb-loans" to (perceived) safe "3% aaa-loans".

[Morten]

Correction:

Perhaps it could use a little more *emphasis* on the actual problem [...]

[Michael Sporer]

Sometimes, you can't beat a whiteboard or flip chart. And, it really illustrates how unchecked greed has a rolling effect on things. You can't blame individuals; blame the system that let it happen!

[Dean]

Mortein wrote:
> You can't blame individuals; blame the system that let it happen!

Not sure if that comment above is tongue-in-cheek or not ...

Sarah Palin suggested the same in the VP debate .. that the crisis is the fault of predator (sic) lenders preying on American homebuyers. It seemed to me to be a blatant populist appeal to voters to say "It's not your fault" But where is personal responsibility in this ?

If you sign up for a loan which has a honeymoon period of say 5% for 2 years ... and you KNOW it will reset to a higher amount later ... how can you be surprised that the repayments go up ?

It's like running up 50K in credit card debts that you can't repay and then saying "It's not my fault ! Why did the banks give me the credit cards?"

I don't get it.

- Dean

[Charles Martineau]

That was a superb video! I thought once of making a video in this sort but to push more in details while using only pictures to describe the present crisis and present it to finance students. Has a honours finance undergrad and future master in finance student, I always thought that finance was tooo left brain! I had some chances where some of my teams at school were very open to make presentation very creative and not only we got a good grade, but now I am a student that everyone turns to when its time for a presentation (But that is all thanks to Garr and his class I attend in Japan).

Next, when I'll have time, I will buy a white board and make my own video, not on CDOs but on CDS (Credit default swaps)..now that's some fun stuff!!

[Dean]

Another YouTube clip on the sub-prime .. this time from a British perspective.

http://www.youtube.com/watch?v=UC31Oudc5Bg

[Morten]

@Dean
It was Michael Sporer, not Morten, who wrote that..

The name appears below the comment (which I too find a tad confusing from time to time).

[Search Engine Optimization Services]

Nice post.
Thanks for sharing.

[Tibor]

About an other crisis with emotional photos:

http://www.youtube.com/watch?v=yj8KZNI6-W8

[Ken]

Brilliant!

I would think this is something ripe for conversion into a slick animated infographic.

[David]

I think those fellows are highly immoral and their behavior should be illegal and they should end up with their bones in jale and their assets confiscated...

[Andee Sellman, One Sherpa]

The best simple explanation that I've seen.
How we got in the mess has always been a mystery to me but after watching the video it's really easy.
It was fund managers trying to over sell investments and using the rating agencies to support them.
Who was at fault? I guess it was the system rather than one individual but man what a mess to clean up!!!

[Christophe Harrer]

Thank you for this amazing example of whiteboard presenting!

The scene has a great setup, because even when the speaker is writting, the camera angle doesn't make it looks like he is showing his back to the audience. Wouldn't it be harder in a real life situation with no camera?

[Sriram]

Along the same vein, but using a screen-capture sketching app instead of a whiteboard are the Khan Academy videos.

His banking crisis series is really good & totally worth the time to check out. So far I've only watched the "Bailout" series (highly recommended viewing), but will definitely see the others.

Youtube links:

Credit crisis playlist:
http://www.youtube.com/view_play_list?p=945E4F0ED131E4D1

Channel home page:
http://www.youtube.com/khanacademy

[Steve]

On a different topic but a very entertaining whiteboard presentation!

http://www.youtube.com/watch?v=ap68EG2K6Bc&feature=related

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[Hootan Dehbonei]

Dear Michael

Well done.

Kind regards,
Hootan

[Dvir Reznik]

Excellent video Garr, thanks for sharing!
Although analog - now I understand what CDOs are, and how this crisis came to be.

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