Modeling the Meltdown; Part 3a: Sketching the Model—Actors

So far in our exploration of the financial crisis, we’ve outlined the contributing factors and how those influenced the actions of various players in the US economy. The next step to building the model is to extract the underlying structure of actors, behaviors, objects and interactions. One way to do this is to read through the previous two postings and note these elements as we encounter them.

The following can be extracted from the previous post with the 12 numbered paragraphs. The numbers in parenthesis represent the paragraph in which the element was first mentioned.

Actors

• Households
  
  • Renters (7)
    
    • Rent cost
      
    • Desire to buy
      
  • Homeowners (1)
    
    • Default rate (2)
      
  • Credit rating (2)
    
  • Sense of wealth (4)
    
  • Non-mortgage debt (4)
    
  • Savings (4)
    
  • Stocks (5)
    
  • Employment status (6)
    
  
  
• Financial businesses
  
  • Type
    
    • Banks (mortgage originators) (1)
      
    • Non-banks (2)
      
  • Balance Sheet (5)
    
  • MBS owned (8)
    
  • Leverage (8)
    
  • CDS bought/sold and with whom (8)
    
  • Stock
    
  
  
• Non-financial businesses
  
  • Sales
    
  • Employment
    
  • Stock
    
  
  
• Government (10)
  
  • Capital injections (10)
    
  • Debt/equity in capital recipients (10)
    
  • Accounting regulations for financial institutions (12)
    
    • Mark to market rule (12)
      
    
    

Behaviors

• Buy home (1)
• Sell Home (1)
• Refinance (1)
• Default (1)
• Foreclose (1)
• Short Sale (1)
• Borrow or pay down non-mortgage debt (5)
• Add or remove money from savings (5)
• Buy or sell stocks (5)

Objects

• Mortgages (1)
  
  • Down payment (1)
    
  • Proof of employment (1)
    
  • Starting interest rate (1)
    
  • Final interest rate (1)
    
  • Mortgage sale rate (2)
    
  • Above/under water (3)
    
  • Callable by the bank (4)
    
  
  
• Homes (1)
  
  • Price (2)
    
  • Mortgage(s) (1)
    
  • Owner (1)
    
  • Supply (2)
    
  
  
• Mortgage Back Securities (2)
  
  • Tranches (2)
    
  • Credit rating (2)
    
  • Price (8)
    
  
  
• Credit Default Swaps (2)
  
  • Seller of contract (8)
    
  • Buyer of contract (8)
    
  
  
• Stock Market
  
  • Dow Index
    
  • Company performance (5)
    
    • Non-financial businesses
      
    • Financial businesses
      
  • Commodity demand (6)
    
  • Mutual funds
    
    • (can buy MBS if AAA rated)
      
    
    

Interactions

• Housing market (2)
• Supply and demand (2)
• Defaults drive home prices lower (3)
• Stock market response to supply and demand for stocks (5)
• Stock market response to consumer spending (5)
• Layoff response to consumer spending (6) (job market?)
• Impact of housing market on rent costs (7)
• MBS price change as a result of defaults (8)
• Financial business stock price in response to balance sheet (10)

Next up, we’ll look at the “other factors” from part 1.