DECONSTRUCTING THE FINANCIAL CRISIS (so far)

Bill Werner is an Engineer in Missouri City, Texas. The following is his attempt at creating a timeline of the current crisis

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2001-2004: Low interest rates and deregulation entices too much debt for individuals, companies and nations

2003-2007: Bad Mortgages made possible from the low interest rates and a lack of regulation are written

1970-2007: Creating and selling derivative securities with a lack of transparency from the bad mortgages and other bad loans (collateralized debt obligations, CDO)

2000-2007: Creating highly leveraged insurance like products with little or no reserves (credit default swaps, CDS) for the above derivatives to the point where their face value of the US securities far exceeds the gross domestic product (GDP) of the USA. (The UK follows a similar path to the US)

2004-2008: All of the above contributes to a false sense of prosperity resulting in worldwide overcapacity

2006-2008: A slow down in the housing boom painfully exposes all of the above causing major entities to start failing

2007-2008: Loss of credibility in major banks and other corporations, local governments and any entities holding suspect CDOs and CDSs resulting in credit drying up in capital markets.

8-10/2008: Capital markets drying up causing commercial paper to stop being issued causing some money market funds to devalue and restricting corporate activity

9-10/2008: Restricted activity in corporations causes investors to see current earnings estimates are drastically over stated

10/2008: Overstated earnings cause the worldwide stock market crash resulting in trillions of dollars evaporating and financial panic

10/2008-?: The worldwide economy starts to deflate beginning a revaluation of all assets, demand and capacity everywhere while main streets around the world start to go into recession and governments begin coordinated action with promises for more.

2008-?: Uncertain future for the world financial system

2009: A Bretton Woods III?

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