Do you guys think the american economy will recover or will it keep going down. Seen on the news that things are not so great of now.
Well I’m sure you’ve heard of Reagonomics? I’m coining the phrase Bushmoronomics for the state our economy is in now!
Our economy was basically ignored for 8 years and Bush focused almost entirely on Iraq, Afghanistan, Iran, scaring Americans, bullying the world and taking the largest surplus in American history and turning it into the largest deficit.
Where the hell was the government oversight when the banks started lending to people they knew couldn’t pay and were building their glass houses? The mortgage and home building industries were basically a pyramid scheme that had to collapse. And if it didn’t happen, the next generation of americans (your children) could probably never afford to own their own homes.
I don’t have any kids, but believe that it’s every parents wish for their chidren to do better than they did. In our 200 + years each generation has done better than the previous one. Starting with the Baby Boomer generation that changed and we are now going backward.
Will the economy recover? That’s hard to say, but I don’t think printing another $700,000,000,000 in fake money and giving it to the banks and financial institutions that put us in this situation out of greed and improper lending practices is the answer.
If the federal government is in such a forgiving mood, why not open up all the prisons and let the inmates walk?
As far as Bush’s speech the other night claiming that tax payers will get back most or all of the money he wants to pour into the financial sector, how many of you are dumb enough to believe that?
The economy will eventually recover. How quickly depends on if Bush’s bailout is successful, or that it turns out to be his final pilferage of American prosperity.
Personally, I think a partial bailout would be a better solution than a complete buyout of all bad paper. I could jump onboard if the financial institutions had to shoulder at least half the burden. But, dumping their mistakes entirely on tax payers and letting them get off scott free I don’t think is the right solution.
Bush’s solution is like rewarding a kid for throwing a temper tantrum.
OK, I’m done with my rants!
I totally agree with you but see he lied to the people once again. 2 weeks ago i remember him talking on a new broadcast saying that the fundamentals of the economy are strong and the markets are good. People should be doing what they are doing. Then just like 2 days ago he comes on again to mention that the economy is in a deep hole and the banks could be in some trouble and the taxpayers could be badly hurt.
Im surprised that he can say this stuff all the time. People already know more or less what is going on and yet he seems to be making all these decisions.
Well with the money he is giving to the banks i dont think that will be a solution. They are talking about it right now and im not sure it will pass thru congress. I think it would be better if they gave it to the taxpayers. If they divided the money each person in America would get $2 500.00. Eventually that money would go back in to the economy and would be cycled. If you give the money to the banks chances it would not. And who is going to bay for the money given to the banks. The U.S. is already in debt and big debt. This will just make it worse. Hope the problem gets fixed soon because the whole worls economy is not doing that good because of this.
I don’t think it is all bad paper. Most of them are not in default. The new Sorbanes /Oxley procedures in the wake of Enron forced the banks to write down the value of the paper. Then the bank stocks were shorted and credit dried up.
Bush certainly was too preoccupied with Iraq but that doesn’t make it all his fault. Bill Clinton even said the other day that Democrats resisted both his and Bush’s attempts at oversight, mostly because Dodd among others was making piles of money. Now the former Freddie and Fannie ceos are Obama advisors after making millions on these scams.
These “equal opportunity” borrowing laws were enacted by Carter and Clinton not Bush.
I honestly don’t feel like we’re in any form of a ‘recession’. In my opinion, it’s just economic cycles.
It will recover, slowly, but I’m sure it will recover somehow. The economic model has to change though, there is too much corruption and inside manipulation. This is what got us in trouble in the first place. Also, people need to get their heads out of their asses and be more responsible too. The housing market wasn’t just created by the bad apples in Wall Street, they created the bait, and stupid people just took the bite.
I don’t think the US will be a strong leader in the world as it once was, but it won’t fall in the same way the Soviet Union fell.
Edit: Wow, has anyone seen the news today? Dow Jones stocks are plummeting. It feels like if it was a natural disaster. This is bad, this is really bad. In my opinion, to be honest, I would much rather have the people that bought their houses by getting subprime loans suffer the consequences for being ignorant about what they were getting into. The executives from mortgage companies should also be accountable, damn it, confiscate their assets and put them in jail. When you are in a position of high responisibility, you need to suffer the consequences when you fuck things up.
Yep! a direct result of Bush’s intimidation and scare tactics and his bailout plan that’s pretty well washed up in it’s current form. And, I’m scared to even think of what’s gonna happen tomorrow when the bells go off.
It looks like Wachovia Bank is the latest to fall, and CNN says that a number of European banks have also collapsed.
There is still a good chance of getting out of this in a reasonable time frame. (1-2 years)
Near as i can tell, there are 3 key pieces that need to be in place.
First, the stockholders in any company that is bailed out must take a subordinate position to the taxpayers. This means that if any money is recovered (after the IRS and creditors) the taxpayers get paid first.
Second, a significant percentage of the bailout money ( i like 30%) should go toward saving mortgages that are going bad now or have failed in the last 60? days. the speculators are pretty much gone. Anybody who has hung on this long has probably made a legitimate effort. I think by now we all realize that failed mortgages are the heart of the problem.
Third, and perhaps most essential, the federal reserve bank must step in and support the value of the dollar. The value of the dollar has been steadily declining for over a year. (Since last Jun/Jul if i remember correctly.) Granted this has been an orderly retreat, a smooth steady decline. There been no response at all from the federal reserve bank. The devalued dollar is the real root of the housing crisis, oil prices, food prices, car sales, the national debt, and well, everything except the price of pheros. (Pleeezzz Jasmine, let us live in peace. Or is that with a piece? And what’s the smilie for praying hands?)
And that the way I see it this Monday evening in September. This is OoohYahh UuuhHuh wishing you a good night and a better tomorrow.shuffling papers
The roots of this crisis were laid down a long time ago. If you are looking to blame one party and congratulate another on their good stewardship in this area, I suggest finding a different topic. Both major parties sold the country down the river, and over the next few years we will be paying the price.
Markets move quickly. The real world takes time to catch up. The layoffs and corporate defaults will come with time. Tacitus was posting about the approaching tidal wave back in 2007. Now we are beginning to see it hit the economy. In the US this is going to be a really nasty recession. In the rest of the world though (UK, Ireland, Spain particularly) it will be a depression.
Getting rid of reserve requirements in 1995 was one bad move - that is one of the things that permitted this lunacy to start. (Look at a log chart of the S&P or of broad credit growth around that time and you will see what I mean).
Here was another - article from NY Times Sep 1999.
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets – including the New York metropolitan region – will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
‘‘Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,’’ said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ‘‘Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.’’
Ask yourself today what role Franklin Raines plays (Google is your friend).
The stock market always overreacts.
Politicians always overreact.
Everyone needs to calm down and watch the market correction for what it is.
It may be time to buy soon.
I agree.
Any free market economy is going to go through boom-bust cycles. After every serious recession, the american economy has experienced market booms that propelled the economy beyond its pre-recession positions.
I’m a believer that too much government intervention in the workings in the market will have a negative impact on a free market economy, and that every action taken by the government will have an equal and opposite reaction. I’m relieved that the 700-billion dollar bail-out plan failed to pass congress…of course this will probably spin us towards a hard recession, but the effect that printing 700 billion dollars will have on the US currency will cause much more harm. The fact of the matter is there is quite a lot of ‘toxic wealth’ that needs to be expunged from the market, and that in process of ‘sucking the poison’ out of our economy, the market is going to have to bleed a bit.
You got it. This was one of the first key events in this process. Even if it was only banks that had the old level of reserves against credit defaults and everything else was the same, todays situation would not be nearly so drastic. If insurance companies, brokerages, and anyone else who dealt with credit instruments had a required reserve even with everything else the same this wouldn’t make it out of the third section of the newspaper. Drasticlally reduceing the reserves for credit defaults is where we rounded the first turn.
The second turn was in 2000 when legislation dergulateing the financial industry allowed the unreglated creation of any unconventional financial instrument that any two parties could agree to. This was the birth of derivatives. A mortgage, an insurance policy, a share of stock, these are all financial insturments based on an underlying physical asset. They are written to common standards that enable them to be trade on an open market. Derivitives are financial instruments based on other financial instruments. I know the first thought is, how can they have any real value without a physical asset? The answer is that if it’s a simple two party contract not traded on the open market then only two parties ever have agree to any value. The seller gives up a subordinate position in a financial instument that would otherwise never pay a dollar, effectively creating value out of thin air. Good deal for the seller. Why would the buyer pay? Since it’s not traded on the open market nobody can prove what a derivitive contract is worth. So when it comes time for the buyer to show this on the balance sheet did they show it as worth more or less than they paid? UuuhHuh. Alot more. Even better, you could make it increase in value any time your balance sheet needed a bump. Artful accountting can make a two party contract without a hard asset virtually invisible except for it’s stated value. Such a great deal that almost any company that deals in any financial instruments, in some cases even car lots and furniture rental places, have a few in the drawer. They wrote these derivitives on every kind of imagineable financial paper. Since these are all private, unregulated contracts, God only knows how many derivitives are out there. Even all this smoke and mirrors would be a managable problem, even the ones based on mortgages that were expected to require regular refinancing. In Vegas they call it ‘betting on the come’. That’s where the dike sprung a leak.
The continuous cycle of mortgage refinanceing was based on the steady long term (decades long) increase in real estate values.
The value of real estate began to decline when banks tightened credit requirements in order limit the amount of money they loaned because they had less money to loan.
American financial institutions had less money to lend because they less access to credit in the international banking system.
They had less ability to borrow in the international banking system becuase their dollars were worth less.
The dollar was worth less because the federal reserve bank refused to support the value of the dollar, like every other central bank in the freaking world defends the value of their currency.
OK, so maybe i am still a little resentful. Last fall when the euro and the canadian dollar both passed parity (when 1euro = 1dollar and 1canadian dollar= 1us dollar) within 2 weeks, i just couldn’t believe that the fed would allow that to happen. My FX trading account was wiped out. I hadn’t planned on still driving a truck by this point.
The resentment is about my personal situation. The anger is about so many people injured. Forgiveness seems to be one of my regular life lessons. I guess i haven’t learned it yet.
I suspect that resentment and anger and forgiveness will become a challenge for a great many of us.
You know what? That is very true, but it won’t be so quick. The housing market really is a mess. Lots of people lost their homes, home prices are going down big time.
But that’s not just the only problem. Gas prices are high, and who knows, it may get higher, depending if oil company executives feel like making more money or not. This drives operational costs up for companies, and also costs for the workers. I now take in consideration jobs that have a better salary/distance ratio. Exporting is affected by this too, and it means that exports may go down even more (if it wasn’t decreasing to begin with).
Also, the credit market is on the brink of collapse too. High interest rates on credit cards, loans, etc. make people less able to pay off debt, therefore sometimes choosing to default. Student loans is a big one here, it affects me too, because I still haven’t started to pay off my loans and I’m not even sure how I’m going to be able to afford the payments if I’m not even getting paid enough.
It’s a domino effect, lots of things are being affected. Rampant government spending (Iraq, bailout bill, shady contract deals, useless earmarks and programs, etc) is forcing to the government to make budget cuts, forcing government funded agencies to make layoffs. Companies will make lots of layoffs too, due to the decrease in capital.
It’s getting bad, really bad, I think for the first time, people are actually going to start thinking into migrating to another country just like Hispanics are migrating here.
And, I am worried with Paulson in charge. To quote Businessweek.
“Think of Paulson as Mr. Risk. He’s one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits. By some key measures, the securities industry is more leveraged now than it was at the height of the 1990s boom. It has also extended its global supremacy since then.”
Wow this post seems to be getting lots of attention because people will be hit very hard. The markets lost 1 trillion dollars yesterday. Atleast they should say who is to blame. Everyone is pointing fingers but no one is to blame.
I’m glad to see you post this Sigma. I’m of the belief that the easy credit days were doing a lot of harm only some of which is now coming home to roost. If one think of credit as a commodity that is priced in terms of the value of the ideas and resources that get it’s backing, it becomes apparent that loose credit often backs bad ideas and inflates the supply of resources. Tight credit on the other hand backs only the best ideas and insures that there is efficiency in the supply of resources.
Like everyone else I would prefer to have the biggest house and fastest car but the reality is those things are not affordable to me and easy credit only makes those things appear to be within my grasp. That’s a deceitful and decieving appearance that fooled a lot of people. It is heartrending that so many have been hurt by this thing, but a free market that ensures efficient delivery of goods and services to broad populations does not, should not, and can not suffer foolishness.
Yes they are, but I am actually glad to see it happening.
I realize that this viewpoint will be wildly unpopular with most of you, and especially to those that are home owners. But, in my lifetime I’ve seen housing values increase by a couple of thousand percent Yet the average salary has barely doubled, if that. Without dubious lending practices, most homes were rapidly becoming unaffordable to newly married couples, first time buyers and the younger generation. Had the glass house not shattered, the american dream would have soon become all but unattainable.
My parents bought their second home 36 years ago when I was 9 years old for $21,000 in North Hollywood, CA, then sold it 3 years later for $29,000. We then bought a home across the street for $28,000 and sold it less than 4 years later for $140,000. Next they bought a new home in Upland, CA for $128,000 and sold it several years later for well over $200,000. That’s 1000% return on investment in just 10 years.
I just checked zillow.com and the estimated value of the house we bought in 1976 for $28,000 is $470,000 today, and the house across the street from the one they bought for $128,000 in 1979 or 1980 is listed at $699,000.
Anybody that bought a home over 5 or 10 years ago has seen their home value skyrocket and has made one hell of a return on their investment, and even with the recent drops in value are still ahead of the game. But at what expense? The fact that if the bubble didn’t burst your children would probably never be able to afford to own a home!
Sorry folks, but I think it’s about time we start looking toward the next generation and trying to insure that they can prosper just as every generation before them. If that means not being able to buy a home and end up looking like you won the lottery a few years later, then so be it.
And today it gained over 62% of those losses back.
let sleeping dogs lie
Lots of people lost their homes because they never should have had a home in the first place.