# How the 2008 financial crisis happened

> A process map exported from forks.world (https://forks.world). Author: Brian. Source: https://forks.world/p/cmv221zlf000mi206mjr5jlqr
> It describes who does what, in what order, and with which technology. Read the plain-language sections first; the JSON at the end is the exact, complete data.

## Summary

- 18 steps across 2 layers
- Persona: Home buyers, Mortgage lenders, Big Wall Street banks, Rating agencies, Government and central bank

## Pain points

Where this process hurts, worst first:

- **Approve risky loans because they will sell them anyway** (How the 2008 financial crisis happened; critical): Lenders no longer carried the risk of the loans they made
- **Stamp the safest slices AAA** (How the 2008 financial crisis happened; critical): Ratings made risky bets look safe
- **Thousands of mortgage payments flow to one pool** (How a mortgage becomes a security; painful): Nobody looked at individual loans after this point

## How to read this file

- A process is made of **layers**. The main layer is the top level; any step of kind `subprocess` opens a detail layer with its own lanes and steps.
- **Lanes** are either persona (people/roles) or technology (systems). Each step belongs to one lane; `using` lists tools a person uses for that step.
- Step kinds: `start`, `task`, `decision` (its arrows carry the answer as a label), `subprocess`, `end`.

## How the 2008 financial crisis happened

Lanes:
- Home buyers: person / role (id `home`)
- Mortgage lenders: person / role (id `lender`)
- Big Wall Street banks: person / role (id `bank`)
- Rating agencies: person / role (id `rating`)
- Government and central bank: person / role (id `fed`)

Steps, in the order they run:

1. **Buy homes with little money down and cheap starting rates** [subprocess; Home buyers; id `g1`], links to the published process "How a mortgage works, from application to the last payment" (https://forks.world/p/cmv21nv6x002kl2064cfeqqcp; full text at https://forks.world/api/public/cmv21nv6x002kl2064cfeqqcp/export)
   - then Approve risky loans because they will sell them anyway
2. **Approve risky loans because they will sell them anyway** [task; Mortgage lenders; id `g2`] ⚠ PAIN POINT (critical): Lenders no longer carried the risk of the loans they made
   - then Bundle thousands of mortgages into securities
3. **Bundle thousands of mortgages into securities** [subprocess; Big Wall Street banks; id `g3`], opens the detail layer "How a mortgage becomes a security"
   - then Stamp the safest slices AAA
4. **Stamp the safest slices AAA** [task; Rating agencies; id `g4`] ⚠ PAIN POINT (critical): Ratings made risky bets look safe
   - then Sell them to investors around the world, financed by short term borrowing
5. **Sell them to investors around the world, financed by short term borrowing** [task; Big Wall Street banks; id `g5`]
   - then Rates reset higher and house prices stop rising
6. **Rates reset higher and house prices stop rising** [task; Home buyers; id `g6`]
   - then Do borrowers keep up with payments?
7. **Do borrowers keep up with payments?** [decision; Home buyers; id `g7`]
   - if "No" go to Defaults rise and the securities lose value; if "Yes" go to The boom continues for a while
8. **Defaults rise and the securities lose value** [task; Mortgage lenders; id `g8`]
   - then Banks cannot tell who is holding the losses and stop lending to each other
9. **Banks cannot tell who is holding the losses and stop lending to each other** [subprocess; Big Wall Street banks; id `g10`], links to the published process "How a bank run happens" (https://forks.world/p/cmv0kpu7j004sjn06auwzqloq; full text at https://forks.world/api/public/cmv0kpu7j004sjn06auwzqloq/export)
   - then Lehman Brothers fails and panic spreads
10. **Lehman Brothers fails and panic spreads** [task; Big Wall Street banks; id `g11`]
   - then Governments rescue banks and the central bank slashes rates
11. **Governments rescue banks and the central bank slashes rates** [subprocess; Government and central bank; id `g12`], links to the published process "How the Fed's interest-rate decision ripples through your life" (https://forks.world/p/cmv0kplgj002fjn0652cqcctk; full text at https://forks.world/api/public/cmv0kplgj002fjn0652cqcctk/export)
   - then Millions lose jobs and homes in the Great Recession
12. **Millions lose jobs and homes in the Great Recession** [subprocess; Home buyers; id `g13`], links to the published process "How a recession starts and ends" (https://forks.world/p/cmv21nuow002fl206l6bgxscx; full text at https://forks.world/api/public/cmv21nuow002fl206l6bgxscx/export)
   - then New rules force banks to hold more cash against risk
13. **New rules force banks to hold more cash against risk** [end; Government and central bank; id `g14`]
14. **The boom continues for a while** [task; Big Wall Street banks; id `g9`]
   - then Rates reset higher and house prices stop rising

```mermaid
flowchart LR
  subgraph l_home["Home buyers"]
    n_g1[["Buy homes with little money down and cheap starting rates"]]
    n_g6["Rates reset higher and house prices stop rising"]
    n_g7{"Do borrowers keep up with payments?"}
    n_g13[["Millions lose jobs and homes in the Great Recession"]]
  end
  subgraph l_lender["Mortgage lenders"]
    n_g2["Approve risky loans because they will sell them anyway"]
    n_g8["Defaults rise and the securities lose value"]
  end
  subgraph l_bank["Big Wall Street banks"]
    n_g3[["Bundle thousands of mortgages into securities"]]
    n_g5["Sell them to investors around the world, financed by short term borrowing"]
    n_g9["The boom continues for a while"]
    n_g10[["Banks cannot tell who is holding the losses and stop lending to each other"]]
    n_g11["Lehman Brothers fails and panic spreads"]
  end
  subgraph l_rating["Rating agencies"]
    n_g4["Stamp the safest slices AAA"]
  end
  subgraph l_fed["Government and central bank"]
    n_g12[["Governments rescue banks and the central bank slashes rates"]]
    n_g14(["New rules force banks to hold more cash against risk"])
  end
  n_g1 --> n_g2
  n_g2 --> n_g3
  n_g3 --> n_g4
  n_g4 --> n_g5
  n_g5 --> n_g6
  n_g6 --> n_g7
  n_g7 -->|"No"| n_g8
  n_g7 -->|"Yes"| n_g9
  n_g8 --> n_g10
  n_g9 --> n_g6
  n_g10 --> n_g11
  n_g11 --> n_g12
  n_g12 --> n_g13
  n_g13 --> n_g14
```

### How a mortgage becomes a security (detail of step "Bundle thousands of mortgages into securities")

Lanes:
- Mortgage lenders: person / role (id `lender`)
- Big Wall Street banks: person / role (id `bank`)

Steps, in the order they run:

1. **Thousands of mortgage payments flow to one pool** [start; Mortgage lenders; id `b1`] ⚠ PAIN POINT (painful): Nobody looked at individual loans after this point
   - then Slice the pool into layers by risk
2. **Slice the pool into layers by risk** [task; Big Wall Street banks; id `b2`]
   - then Top slices are paid first, bottom slices absorb the first losses
3. **Top slices are paid first, bottom slices absorb the first losses** [task; Big Wall Street banks; id `b3`]
   - then Sell each slice to a different kind of investor
4. **Sell each slice to a different kind of investor** [end; Big Wall Street banks; id `b4`]

```mermaid
flowchart LR
  subgraph l_lender["Mortgage lenders"]
    n_b1(["Thousands of mortgage payments flow to one pool"])
  end
  subgraph l_bank["Big Wall Street banks"]
    n_b2["Slice the pool into layers by risk"]
    n_b3["Top slices are paid first, bottom slices absorb the first losses"]
    n_b4(["Sell each slice to a different kind of investor"])
  end
  n_b1 --> n_b2
  n_b2 --> n_b3
  n_b3 --> n_b4
```

## Full data (JSON)

```json
{
  "title": "How the 2008 financial crisis happened",
  "maps": {
    "m_root": {
      "id": "m_root",
      "lanes": [
        {
          "id": "home",
          "name": "Home buyers",
          "type": "person"
        },
        {
          "id": "lender",
          "name": "Mortgage lenders",
          "type": "person"
        },
        {
          "id": "bank",
          "name": "Big Wall Street banks",
          "type": "person"
        },
        {
          "id": "rating",
          "name": "Rating agencies",
          "type": "person"
        },
        {
          "id": "fed",
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        }
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            "title": "How a mortgage works, from application to the last payment"
          },
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            {
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            }
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          "label": "Buy homes with little money down and cheap starting rates"
        },
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            }
          ],
          "pain": {
            "note": "Lenders no longer carried the risk of the loans they made",
            "level": 3
          },
          "uses": [],
          "label": "Approve risky loans because they will sell them anyway"
        },
        {
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            }
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          "uses": [],
          "child": "m_bundle",
          "label": "Bundle thousands of mortgages into securities"
        },
        {
          "id": "g4",
          "kind": "task",
          "lane": "rating",
          "next": [
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            }
          ],
          "pain": {
            "note": "Ratings made risky bets look safe",
            "level": 3
          },
          "uses": [],
          "label": "Stamp the safest slices AAA"
        },
        {
          "id": "g5",
          "kind": "task",
          "lane": "bank",
          "next": [
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            }
          ],
          "uses": [],
          "label": "Sell them to investors around the world, financed by short term borrowing"
        },
        {
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          "kind": "task",
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          "next": [
            {
              "to": "g7"
            }
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          "uses": [],
          "label": "Rates reset higher and house prices stop rising"
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              "label": "No"
            },
            {
              "to": "g9",
              "label": "Yes"
            }
          ],
          "uses": [],
          "label": "Do borrowers keep up with payments?"
        },
        {
          "id": "g8",
          "kind": "task",
          "lane": "lender",
          "next": [
            {
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            }
          ],
          "uses": [],
          "label": "Defaults rise and the securities lose value"
        },
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          "id": "g9",
          "kind": "task",
          "lane": "bank",
          "next": [
            {
              "to": "g6"
            }
          ],
          "uses": [],
          "label": "The boom continues for a while"
        },
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          "kind": "subprocess",
          "lane": "bank",
          "link": {
            "id": "cmv0kpu7j004sjn06auwzqloq",
            "scope": "public",
            "title": "How a bank run happens"
          },
          "next": [
            {
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            }
          ],
          "uses": [],
          "label": "Banks cannot tell who is holding the losses and stop lending to each other"
        },
        {
          "id": "g11",
          "kind": "task",
          "lane": "bank",
          "next": [
            {
              "to": "g12"
            }
          ],
          "uses": [],
          "label": "Lehman Brothers fails and panic spreads"
        },
        {
          "id": "g12",
          "kind": "subprocess",
          "lane": "fed",
          "link": {
            "id": "cmv0kplgj002fjn0652cqcctk",
            "scope": "public",
            "title": "How the Fed's interest-rate decision ripples through your life"
          },
          "next": [
            {
              "to": "g13"
            }
          ],
          "uses": [],
          "label": "Governments rescue banks and the central bank slashes rates"
        },
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          "kind": "subprocess",
          "lane": "home",
          "link": {
            "id": "cmv21nuow002fl206l6bgxscx",
            "scope": "public",
            "title": "How a recession starts and ends"
          },
          "next": [
            {
              "to": "g14"
            }
          ],
          "uses": [],
          "label": "Millions lose jobs and homes in the Great Recession"
        },
        {
          "id": "g14",
          "kind": "end",
          "lane": "fed",
          "next": [],
          "uses": [],
          "label": "New rules force banks to hold more cash against risk"
        }
      ],
      "title": "How the 2008 financial crisis happened",
      "parent": null
    },
    "m_bundle": {
      "id": "m_bundle",
      "lanes": [
        {
          "id": "lender",
          "name": "Mortgage lenders",
          "type": "person"
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        {
          "id": "bank",
          "name": "Big Wall Street banks",
          "type": "person"
        }
      ],
      "steps": [
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          "id": "b1",
          "kind": "start",
          "lane": "lender",
          "next": [
            {
              "to": "b2"
            }
          ],
          "pain": {
            "note": "Nobody looked at individual loans after this point",
            "level": 2
          },
          "uses": [],
          "label": "Thousands of mortgage payments flow to one pool"
        },
        {
          "id": "b2",
          "kind": "task",
          "lane": "bank",
          "next": [
            {
              "to": "b3"
            }
          ],
          "uses": [],
          "label": "Slice the pool into layers by risk"
        },
        {
          "id": "b3",
          "kind": "task",
          "lane": "bank",
          "next": [
            {
              "to": "b4"
            }
          ],
          "uses": [],
          "label": "Top slices are paid first, bottom slices absorb the first losses"
        },
        {
          "id": "b4",
          "kind": "end",
          "lane": "bank",
          "next": [],
          "uses": [],
          "label": "Sell each slice to a different kind of investor"
        }
      ],
      "title": "How a mortgage becomes a security",
      "parent": {
        "map": "m_root",
        "step": "g3"
      }
    }
  }
}
```