no sooner than we get a grip on the subprime real estate disaster:
poof!
Tacitus seems to be away at the moment, but he was very early and very right on this housing (really credit) bubble unravelling story. The situation has developed since he last posted, and the situation probably will have profound ramifications for ordinary people.
Financial markets move more quickly than business and the real world, but it might be a good idea to keep an eye on what is going on and think about making some personal contingency plans for possible scenarios.
Jim Puplava has been right and early on many of the problems coming home to roost. Here’s a link to his radio show.
Here’s another useful piece on recent events by John Mauldin, a well respected and moderate investment adviser, that gives you an idea of the current stakes. No fun to be the bearer of less than good news, but sometimes it’s better to be forewarned. Yes, one an always find gloomy stuff to scare you on the internet, but this situation is a bit different and a bit more imminent.
InvestorsInsight : Thoughts From The Frontline > Print View
But for now, we need to bail the water out the boat and see if we can plug the leaks. Allowing the boat to sink is not an option. And get this. You are in the boat, whether you realize it or not. You and your friends and neighbors and families. Whether you are in Europe or in Asia, you would have been hurt by a failure to act by the Fed. Everything is connected in a globalized world. Without the actions taken by the Fed, the soft depression that many have thought would be the eventual outcome of the huge build-up of debt would in fact become a reality. And more quickly than you could imagine.
As I have repeatedly said, recessions are part of the business cycle. There is nothing we can do to prevent them. But depressions are caused by massive policy mistakes on the part of central banks and governments. And it would have been a massive failure indeed to let Bear collapse. I should note that this was not just a Fed action. Both President Bush and Secretary Paulson signed off on this.
The Fed risking a few billion here and there to keep the boat afloat is the best trade possible today. Their action saved trillions in losses for investors all over the world. It is a relatively small price. If you want to be outraged, think about the multiple billions in subsidies for ethanol and the hundreds of billions of so-called earmarks over the past few years to build bridges to nowhere. And think of the billions in lost tax revenue that would result from the ensuing crisis. I repeat, this was a good trade from almost any perspective, unless you are from the hair-shirt, cut-your-nose-off-to-spite-your-face camp of economics.
The Fed is to be applauded for taking the actions they did. And they may have to do it again, as there are rumors that another major investment bank is on the ropes. I hope that is not the case, and will not add to the rumors in print, but I am glad the Fed is there if we need them.
It is precisely because the Fed is willing to take such actions that I am modestly optimistic that we will “only” go through a rather longish recession and slow recovery and not the soft depression that would happen otherwise.
Thank God you don’t live in or near Detroit!!