Revisiting the NY Times Interactive Timeline: 10 Weeks of Financial Turmoil

The New York Times developed an interactive timeline of the events surrounding the economic crisis from September 7 through November 17 2008. It is worth taking a look at the timeline, even if you've seen it previously.

Ten Weeks of Financial Turmoil

Blinded by Truthiness: NY Times Article: On Wall Street, Bonuses, Not Profits, Were Real

Looking at the various entries I've posted to this blog, I've noticed a common thread. Much of our financial system is built on something that is fake. Hedge funds. Short selling. Bonuses for CEO's running companies that are not all that sound.

Many people followed the herd mentality. Groupthink. A recent example is all of the people who lost money investing with Bernie Madoff, or trusted financial advisers who funnelled some of their funds into Madoff's Ponzi scheme.

Trust has been lost.

Our system has rewarded perceived movers and shakers in the financial industry. Just think about the huge amount of money that people made from selling mortgages and mortgage-back securities! What about the CEO's who earned large bonuses, even though their companies weren't doing so well, were not run well, or were tanking behind the scenes?

A recent article in the New York Times, On Wall Street, Bonuses, Not Profits, Were Real (12/17/08 - Louise Story). According to the article, in 2006, Dow Kim, at Merrill Lynch, had a salary of $350,000, but received a bonus of $35 million, for overseeing his company's mortgage business traders.

"...Merrill's record earnings in 2006 - $7.5 billion - turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.... Unlike the earnings, however, the bonuses have not been reversed."

Fueled by greed? Yes. But also blinded by "truthiness".

"Truthiness" is a term that sprung from the head of comedian Stephen Colbert's head.

According to Colbert, Truthiness is 'What I say is right, and [nothing] anyone else says could possibly be true.' It's not only that I feel it to be true, but that I feel it to be true. There's not only an emotional quality, but there's a selfish quality."

Related:
New York Times Series: The Reckoning (Articles exploring the causes of the financial crisis)

New York Times Reader's Comments

Graphic from the New York Times:

http://www.nytimes.com/2008/12/18/business/18pay.html?pagewanted=1&_r=1

How will trust be restored in our financial markets? There is a long road ahead.

Interactive Economic Graphic from NY Times: Year-over-year change in home prices through August 2008 - data from Standard & Poor's Case-shiller

Thank you Vu Nguyen, Seth Feaster, and Kevin Quealy for the elegant interactive graphic of the change in home prices in 20 cities in the US from January '01 through August '08!

Related:
For more information about housing price changes and finance topics, do a search on the Seeking Alpha website. Also check out Seeking Alpha's Breaking News page, for "real time commentary on the market, with links to key sources".

Seeking Alpha is the child of David Jackson, a former tech research analyst for Morgan Stanley. I plan on spending some time exploring the site. The nice thing about this site is that the articles are arranged a tagged so it is easy to find the information you need. The articles often contain lots of links, so you don't have to waste too much time digging deeper into topics of interest.

Below is a sample of some of the graphics related to US home prices via Seeking Alpha, in no particular order:

NY Times Series "The Reckoning: The Risk in Hindsight"

As a public school employee, my investment knowledge, until the past few weeks, has been limited to my understanding of my low-risk 401K and 403-b funds.

Derivatives? Hedge funds? Credit Derivatives? Short selling? Futures Contracts? Why should I worry about all of that! Like many other people, I was happy in my ignorance.

Here are a few links that I found useful in my fast-track education in finance and economics:

The New York Times Online is full of articles and video clips exploring the causes of the financial crisis:

Video: Examining the Financial Crisis
Video Timeline: Five Weeks of Financial TurmoilVideo: How Fannie Mae's Problems Lead to the Country's Financial Crisis
The Credit Crisis-The Essentials
AIG: Behind Insurer’s Crisis, Blind Eye to a Web of Risk
Taking a Hard New Look at Greenspan Legacy


NY Times Multimedia Graphic: Growth of a Complex Market

Interactive Graphic: Credit Crisis Indicators

More to come!

Reference:
Investopedia

Did we for get the lessons learned from Enron?

Did we forget the lessons from Enron?
There was quite a bit of publicly available information around related to the Enron fiasco in 2001. Available on-line is the Enron Explorer e-mail visualizer, which was created from the database of all of the email messages between Enron's senior management team as things were falling apart between 1999-2002.






visualcomplexity.com

The following NY Times article (February 2002) will refresh your memory: Enron's Many Strands: The Company Unravels; Enron Buffed Image to a Shine Even as it Rotted from Within

Punishment was not swift, as the trial ended in 2006:
Two Enron Chiefs are Convicted in Fraud and Conspiracy Trial (NY Times, 2006)

"... the executives had sanctioned or encouraged manipulative accounting practices and then crossed the line from cheerleading into outright misrepresentations of financial performance."

"Enron's fall had a far greater impact than on just the energy industry by heightening nervousness among average investors about the transparency of American companies. "The Enron case and all the other scandals and cases that trailed after it may have finally punctured that romance with Wall Street that has been true of American culture for a while now," said Steve Fraser, a historian and author of "Every Man a Speculator: A History of Wall Street in American Life."