Editore"s Note
Tilting at Windmills

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January 21, 2008
By: Kevin Drum

OVER THE CLIFF....From the Wall Street Journal today:

U.S. Warning Signs Point Toward a Deep Recession

The U.S. has suffered recessions only twice in the past quarter century and both were short and mild. There are good reasons to fear that the looming recession, if it arrives, could be worse.

Housing is in the midst of its worst downturn since at least the 1970s. That has led to a meltdown in the mortgage market....[etc. etc.]

From the New York Times:

Stocks Plunge in Europe and Asia on U.S. Recession Fear

Global stock markets plunged on Monday as fears spread that the turmoil in United States mortgage markets is spreading. Indexes in Europe fell as much as 7 percent after a huge selloff in Asia.

"There's something approaching panic in the market," Holger Schmieding, the chief European economist at Bank of America in London said by telephone.

The ability of the financial industry to panic is truly extraordinary. It's not that they're necessarily wrong, just that as recently as a few weeks ago most of them were arguing that as bad as the subprime debacle was, it was probably relatively contained and would lead to a slowdown at worst. A month later they're jumping out of windows.

So as long as we're at it, here's some more bad news: a quick Nexis search shows that in November there were about 500 references to "recession" each week. In December it was up to over 1,000. So far in January, it's been over 2,000 each week. If you believe in the newspaper theory of predicting recessions, then there's not much question that we're headed straight into one.

Kevin Drum 10:48 AM Permalink | Trackbacks | Comments (87)

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Comments

The only thing that can save us is more and permanent wildly regressive tax cuts. Pronto!

Posted by: WSJ editorial page on January 21, 2008 at 10:55 AM | PERMALINK

Obviously we need to eliminate the inheritance tax. That'll fix everything.

Posted by: steve duncan on January 21, 2008 at 10:56 AM | PERMALINK

Why is everyong talking about 'heading into a recession' this, and 'we might end up in a recession' that.

We've been in one for ages!

The level of denial is utterly incomprehensible.

Posted by: sara on January 21, 2008 at 10:59 AM | PERMALINK

Amazing. After a little over a year in control the Democrat congress has brought on a recession.

Posted by: TruthPolitik on January 21, 2008 at 11:01 AM | PERMALINK

The ability of the financial industry to panic is truly extraordinary.

That's not true. This behavior is observed in any system with positive feedback "control" laws. It also suggests mechanisms for reducing this out of control panic if anyone cared to use an engineering approach to eliminate it.

Sadly, economists and finance majors pretend they are physicists when they are closer to astrologers.

Posted by: jerry on January 21, 2008 at 11:03 AM | PERMALINK

I was hypnotized into believing my breasts were gone. That was truly udderly incomprehensible.

Posted by: cow on January 21, 2008 at 11:04 AM | PERMALINK

Sara: Why is everyong talking about 'heading into a recession' this, and 'we might end up in a recession' that.


The official definition of recession is when GDP growth is negative for two quarters or more. That has not yet happened, so formally we are not in a recession.

Posted by: ex-liberal on January 21, 2008 at 11:13 AM | PERMALINK

The mortgage thing is gratuitous and mean-spirited. This is one of those times a major bailout - for struggling homeowners and probably lenders too (with new rules attached) - is called for. The Bush White House is too cruel and the Democratic Congress too clueless to make that happen. What we're getting is a compromise unlikely to help the people who really need it or change the culture and bad practices of the lending industry.

What really concerns me though is inflation and rising oil prices. Significantly reducing oil dependence worldwide is the only way this thing is going to end.

Posted by: Linus on January 21, 2008 at 11:15 AM | PERMALINK

A recession is defined as two consecutive quarters of negative GDP growth. (That's six months for you non-economic types.) As far as I can tell, we have not yet had one quarter of negative GDP growth. So until we do, I see no reason for any "stimulus package" from our elected morons in Washington, which will most likely making matters worse than not doing anything.

As for the reason for this sudden rash of recession talk in the media, the answer is obvious. It is the attempt by the MSM to provide an election issue for the Dems since Iraq is not going to be the silver bullet issue for them that they thought it would.

Posted by: Chicounsel on January 21, 2008 at 11:15 AM | PERMALINK

Amazing. After a little over a year in control the Democrat congress has brought on a recession.

So, TruthPolitik--in your opinion, what exactly did the Democrats do legislatively to bring on this recession? Be specific.

Posted by: James Gary on January 21, 2008 at 11:16 AM | PERMALINK

The extraordinary thing about this is how little attentiaonal major financial players have paid to the unfolding of this crisis. It was entirely predictable a few years ago and then became entirely inevitable this year.

The giant and collective "no one could have predicted" coming from the governments and markets are the truly "extraordinary" thing about this crisis.

I can see the GWB administration being blinded by ideology, but what about the hard-eyed traders around the world? Truly "extraordinary"--who can you trust your investments to?

Posted by: Neal on January 21, 2008 at 11:18 AM | PERMALINK

Obviously we need to eliminate the inheritance tax.

It's called the death tax, you fool! DEATH TAX!!!

And, yes, it's the one thing keeping hard working Americans from achieving the American dream. Who would want to earn all that money if you have to give some portion of it to the Govt upon your "Grand Exit"? Better to stay a welfare queen driving around in a brand new Cadillac.

Posted by: affernt input on January 21, 2008 at 11:18 AM | PERMALINK

If anyone is thinking of checking their 401K I strongly recommend you DON'T do it at this time.

The news is incredibly depressing. Call it whatever you want but damn the financial markets are down, after taking seven years to finally recover from the Bush years.

Posted by: Tripp on January 21, 2008 at 11:19 AM | PERMALINK

Just playing devil's advocate for a moment, wouldn't it be better for everyone, including the homeowner that cannot afford his/her payments to allow the bank to foreclose?

Right now the homes are priced way too high, and I believe rents are rising as home owners delay purchasing to wait for the bubble to deflate.

A homeowner foreclosed upon will presumably lose the "negative equity" which is presumably a good thing to lose, and should be able to qualify for a home she/he can afford or even a home similar to the old home that has been repriced at more realistic prices. (Or as Atrios says, everyone mail their keys to the bank and buy their neighbor's house.)

I think it's clear that if capitalism is to work in any degree, we need the lending company shareholders and the executives in the lending companies to take it in the shorts. To that end, no bailout whatsoever of lending companies, and windfall profits taxes to tax away the golden parachutes of the executives.

Posted by: jerry on January 21, 2008 at 11:20 AM | PERMALINK

"...attempt by the MSM to provide an election issue for the Dems"

Yessir, that's why they're madly in love with John McCain.

Boy, we've got some people who are going to have a seriously rude awakening when the roof falls in. We're not just looking at another recession, folks. Decades of short-sighted thinking and wrong decisions are finally catching up with this country, and all while Peak Oil (and Peak Everything Else) is about to kick in.

Posted by: Speed on January 21, 2008 at 11:25 AM | PERMALINK

Chicocounsel,

Please give me a little of what you are smoking, even for temporary relief.

So the press is responsible for the inflation over 4%, stagnant wages, the HUGE losses for stupid sub-prime lenders and those who bought their collections of garbage, and my falling 401K?

And they are doing all this to help the Democrats?!


BWAHAHAHAHAHAHAHAHAHAHA!

OHMIGOD are you an idiot.

Posted by: Tripp on January 21, 2008 at 11:25 AM | PERMALINK

You know, I think this whole bankrupting the country thing was planned. What is the one big thing that the Repugs been whining about for so long? Government programs, especially those that aid the poor, protect the environment or enforce regulations against corporate corruption. Remember all those government shutdowns they've institgated in the past?

I think what happened is they all got together one days and said, "Look, what's the best way to starve these programs of money and direct that money our way in the process? Start a war in some black hole against someone that nobody likes. It's got to be someplace where tracing the loot will be difficult if not impossible. Explain that we need lots of funding to fight terrorism. Brand anyone who doesn't agree a traitor or unpatriotic. As a bonus I'd suggest we go for some country with lots of oil." To which boy George pipes up "Iraq! they tried to get my dad!" They all agree it's a good plan. A pause, then someone asks, "OK, so how do we start it. You can't just attack for no reason, the public will have a problem with that. There'd have to be some kind of, er, provocative act wouldn't you think? ..."

I'm not suggesting that without the war the country would be rock solid financially, but it sure was better before the looters got in and the war (along with other Repug policies) sure has pushed the economy over the edge.

Posted by: Pilfer on January 21, 2008 at 11:26 AM | PERMALINK

Yeah, their ability to panic is epic.
What's sad, is that some of the wiser among them thought to themselves more than a year ago, "Gee, this has the potential to work out very badly, maybe we should start doing something about it now, so we don't get our asses kicked over the next two years."
And they had a little mini-panic, made some pre-emptive write-downs, and got the fuck out of the sub-prime CDOs and SIVs.
Mind you, we'd all be better off if some of those folks had screamed, loudly, that expecting a housing bubble to successfully prop up the economy was a stupid idea that could only end in tears.

Posted by: kenga on January 21, 2008 at 11:26 AM | PERMALINK

Great to see that Bush is probably going to end his Presidency with a bang!

Heckuva finish on top of heckuva job.

Posted by: frankly0 on January 21, 2008 at 11:28 AM | PERMALINK

jerry,

How are these bankrupt "previous homeowners" going to get the loan to buy their neighbors house? Are you going to loan them the money?

Geeze, man, use your head!

Posted by: Tripp on January 21, 2008 at 11:28 AM | PERMALINK

Everyone can be a billionaire! You're just a loser if you're not driving a limo and living in a mansion. Stupid loser liberals always whining about the greatest economy that ever existed. Stop hating America and watch as the Dow hits 100,000 next year!

Posted by: Conservatroll on January 21, 2008 at 11:29 AM | PERMALINK

jerry, you're right and you're wrong.

If your house has negative equity, it would help to get rid of that negative equity.

On the other hand, if your house has negative equity, then there's a very good chance that you are in very bad shape financially.

It's like saying that if you weigh 500 pounds, it would help you to lose 3 pounds.

Posted by: reino on January 21, 2008 at 11:35 AM | PERMALINK

Check out this graph.

http://zfacts.com/p/519.html

Posted by: Pilfer on January 21, 2008 at 11:39 AM | PERMALINK

“Why is everyong talking about 'heading into a recession' this, and 'we might end up in a recession' that.
We've been in one for ages!
The level of denial is utterly incomprehensible.”

and

“Great to see that Bush is probably going to end his Presidency with a bang!
Heckuva finish on top of heckuva job.”

Sara and Frankly O – my sentiments exactly. We have been in a recession and are headed for a depression. Apocalypse now. The current state of this epoch leaves a Herculean task for the new administration and the year is still young.

Posted by: Ballard Bernstein on January 21, 2008 at 11:40 AM | PERMALINK

Pilfer, I sometimes suspect something very similar.

You know, I think this whole bankrupting the country thing was planned. What is the one big thing that the Repugs been whining about for so long? Government programs, especially those that aid the poor, protect the environment or enforce regulations against corporate corruption. Remember all those government shutdowns they've instigated in the past?

Carlyle Group has been mentioned recently as planning to purchase(and take private) a major lender or investment house. Various foreign governments have been buying large stakes in major financial institutions(Citi, Merrill Lynch) and most of those governments either have direct relationships with Republican luminaries(Bush, Cheney), or relationships with multinational corporations closely tied to those persons(among others, Saudi Arabia, Dubai - Halliburton's new corporate HQ is there.)
It makes me wonder - almost all of the major financial institutions are selling big stakes in order to shore up their capitalization levels. The mess we are looking at(which seems to be gaining momentum rather than losing it) was not just predictable, it was actually predicted by some folks without a financial stake in the big institutions.

Posted by: kenga on January 21, 2008 at 11:40 AM | PERMALINK

"The official definition of recession is when GDP growth is negative for two quarters or more."

There is a rule of thumb, and there is an official definition. You have confused the two.

A recession occurs when the NBER says it has.

Posted by: cactus on January 21, 2008 at 11:44 AM | PERMALINK

"The official definition of recession is when GDP growth is negative for two quarters or more."

There is a rule of thumb, and there is an official definition. You have confused the two.

The official definition of a recession is whenever the NBER declares there is one.

Posted by: cactus on January 21, 2008 at 11:45 AM | PERMALINK
A recession is defined as....Chicounsel at 11:15 AM ....ditto ex-lax at 11:13 AM
The Bush lickspittles are out in force again stating that the basic fundamentals are sound. Of course, supply-side tax cuts were to prevent any economic downturn just as deregulation would let capitalists be capitalists so no one need worry. Listen to the boyz: another tax cut, more deregulation, bigger deficit spending and all will be well. In with a recession, lousy economic growth throughout, and end with a recession. Keep the faith, Bushistas. Posted by: Mike on January 21, 2008 at 11:53 AM | PERMALINK

They'll qualify for a lower home because:

a) they still have the job that enables them to buy any home

b) shorn of the negative equity and the very high payments, a lender using his/her head and not just a computer will realize that this homeowner is a reasonable credit risk when placed in a home more attuned to her/his ability to pay.

c) lenders will stand want to lend, home builders still want to build, and they will "be forced" to use their heads and not just a computer generated credit schore

d) worse comes to worse and the homeowners declare bankruptcy, that will perversely make them better able to pay their home loans after shedding credit card debt as well.

Now, they may not get the cheapest interest rate, but with more realistic pricing, their ability to pay will not be nearly as sensitive to the interest rate.

All it seems that bailing out these folks will do is ensure they still can't pay their homes in six months to a year and will ensure that the tulips are still vastly overpriced.

I don't see how you can expect the bubble to deflate unless someone is expected to take a loss. Foreclosure seems to spread the loss between buyer and the bank and mostly seems to hit the bank and the bank's shareholders.

In the meantime, there are millions of Americans that would be good candidates for first time home buyers if the tulips are allowed to come down to reasonable prices.

Posted by: jerry on January 21, 2008 at 11:56 AM | PERMALINK

Stock market wise, we're in for a bad day tomorrow in the U.S., the only question being how bad, imho. Two interesting indicators -- the volatility indicators, VIX and VXN, haven't even begun to enter into the range suggesting a bottom is near. Hold on...

NEW YORK, Jan 21 (Reuters) - U.S. stock index futures were sharply lower on Monday, pointing to a steep drop at the open on Tuesday, as fears of a U.S. recession gripped investors globally.

U.S. stock markets are closed for the Martin Luther King Jr. Day holiday on Monday.

S&P 500 futures SPc1 were down 52 points, far below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures DJc1 dropped 403 points, and Nasdaq 100 NDc1 futures slid 63.75 points. (Reporting by Kristina Cooke; Editing by Tom Hals)

Posted by: ACK on January 21, 2008 at 12:00 PM | PERMALINK

There have been some references to the Bush years as a "CEO's recovery." Strong profits and low inflation, but coupled with flat real wages, rising poverty and high long-term unemployment.

The middle class has been in a recession for a while, positive GDP or not.

Posted by: tomeck on January 21, 2008 at 12:01 PM | PERMALINK

So...at what point does a "deep recession" take that extra step to be a "depression"? Or is "depression" no longer part of the language? What USED to be a "depression" will henceforth be referred to as a "deep recession", a "really deep recession", or is it now to be an "incredibly deep recession"?

Posted by: Praedor Atrebates on January 21, 2008 at 12:06 PM | PERMALINK

Amazing. After a little over a year in control the Democrat congress has brought on a recession.
Posted by: TruthPolitik

Well, then, by your "logic" GWB caused 9-11 and is therefore guilty of treason.

Posted by: pat on January 21, 2008 at 12:07 PM | PERMALINK

Ah, Kevin.

Let's take a look at the fundamentals, shall we?

1. Average unemployment rate under Bush lower than same under Clinton.
2. Bush growth going strong since trough in 2001.
3. INterest rates still at historical low standerds.

I could site more, but I feel I've be wasting my time.

Posted by: egbert on January 21, 2008 at 12:07 PM | PERMALINK

Kenga, now that's salient info. What are your sources? I don't doubt, just curious. So: the net effect is to have "Wall Street" owned by foreign governments with pull in the white House. I'm stupid: who gains as the market tanks? A certain cabal of embedded 'brokers' who make massive fees as they shift fundamental economic power offshore? An entrenched Repug ideology that rides the fiscal hemorrhaging of a military occupation towards 'necessary' government attrition? What's your hypothesis?

Posted by: Conrad's Ghost on January 21, 2008 at 12:08 PM | PERMALINK

ex-lib, are you ready to answer my question?

How many deferments did you ask for and receive during the Vietnam war?

Posted by: Isle of Lucy on January 21, 2008 at 12:20 PM | PERMALINK

'Tis neither a recession nor a depression. It is a decline that has been postponed through massive public and private borrowing. Time to pay the piper.

Posted by: Luther on January 21, 2008 at 12:22 PM | PERMALINK

jerry,

You are amazingly stupid.

Do you honestly think a job enables one to buy "any home?" WTF?!

Second, in case you haven't noticed, credit is so tight you couldn't pull a needle out of its ass with a tractor.

Once again, who is going to give these loans?

Third, not everybody foreclosed upon bought an "over-priced" house. Some of them got caught in the ARM Trap when their house did not appreciate as much as they needed.

Fourth, are you not aware that some people with some equity in their house but unable to make the higher payments are being fleeced out of their house AND their equity?

Corporations are buying the house from them and renting it back to them at a rate higher than their house payment. If they can't sustain that payment they lose their house AND their equity.

Yeah, that is a ripoff but it is sneaky and hidden from some people and not currently illegal.

Posted by: Tripp on January 21, 2008 at 12:25 PM | PERMALINK

People! People! People! Let's get with the program, okay?

All together now, "It's Clinton's fault!".

Sheesh. Do I have to do everything around here?

Posted by: bobbywally on January 21, 2008 at 12:25 PM | PERMALINK

If anyone is thinking of checking their 401K I strongly recommend you DON'T do it at this time. - Tripp

That will likely be the negative turbocharger that will drive the Dow down about 2500 pts next week, maybe more. I can see people on their computers getting into their benefits and moving stuff around all week long. The "big" crash is coming in the next week or two methinks.

Posted by: Doc at the Radar Station on January 21, 2008 at 12:27 PM | PERMALINK

Third, not everybody foreclosed upon bought an "over-priced" house. Some of them got caught in the ARM Trap when their house did not appreciate as much as they needed.
Posted by: Tripp

So who promised them X amount of appreciation?

They played musical chairs, and now that the music's stopped they're left standing. It pisses me off to see people bailed out who took risks while I and others played it safe and bought within means.

Posted by: SJRSM on January 21, 2008 at 12:31 PM | PERMALINK

Great to see that Bush is probably going to end his Presidency with a bang!
Heckuva finish on top of heckuva job -frankly0

Yepper. The cherry on the cake.

Posted by: Doc at the Radar Station on January 21, 2008 at 12:31 PM | PERMALINK

"I could site more, but I feel I've be wasting my time."

Why Egbert... do continue!

Federal Budget Deficit
US Trade Deficit
Middle Class Wage Loss
Number of Manufacturing Jobs
Bankruptcies and forclosures
US Ranking in Education
US Ranking in Health Care

Good luck with all that.


Posted by: Buford on January 21, 2008 at 12:31 PM | PERMALINK

Listen;
We've been WARNING y'all for 5+ stinkin years!

The combination of the Bush Tax Cuts, the 2002-2004 borrowing binge, lack of war-spending oversight (fraud fraud fraud fraud, war profiteering, and fraud), combined with the Bankruptcy Bill, and Medicare Part D, was not just going to lead this nation into a Recession, but into a Depression; and in the process, bankrupt the federal government so badly, that we won't be able to spend our way out of it.

And in this DELIBERATELY ORCHESTRATED PLAN: both houses of congress - BOTH PARTIES, were not merely compliant, they all worked very hard for their ultra-wealthy masters to make sure it happened.

This was the only way they could loot the "too-well-off" middle class, before the middle class could figure out what was happening and put a stop to it.

It's far to late to stop it now. It's a done deal. Trillions of dollars of value were created out of thin air to allow the ultra wealthy to purchase hard assets (Gold, Land, Oil, etc) - and now they own those assets, and the Trillions of Dollars of fiat money have now "evaporated". All that's left to do is to process the forclosures, round up the refugees from the suburban McMansions, and haul them off to Chinese labor camps.

The Bushes sold us to foreign interests.

And our own "pro-National-Security" enablers were waving the flag, and cheering the whole way.

Posted by: osama_been_forgotten on January 21, 2008 at 12:39 PM | PERMALINK

The solution is simple - we just need another new bubble!

How about rampant speculation of the value of lucky rabbit's feet?

Posted by: optical weenie on January 21, 2008 at 12:40 PM | PERMALINK

I prefer the "Republican President" theory of predicting recessions, myself.

Posted by: scarshapedstar on January 21, 2008 at 12:41 PM | PERMALINK

Jerry, I haven't bought a lot of houses. However, my experience is that when qualifying borrowers, banks use credit scores instead of brains.

Posted by: AK Liberal on January 21, 2008 at 12:43 PM | PERMALINK

They played musical chairs, and now that the music's stopped they're left standing. It pisses me off to see people bailed out who took risks while I and others played it safe and bought within means.

I'm torn here - there were no voices advocating caution - not that I recall hearing any way.

I think I've mentioned before the ARM I didn't take, about four years ago. We were an hour from closing and backed out - caused quite a fight with the spouse, but that settled down after a couple of months...I threw a hissy-fit and refused to sign. We waited a while, accumulated some more down money, and bought this coop unit on a 20-year fixed a little over a year later. But the real estate agent was a right prick when I got cold feet - actually looked at my husband and said "talk some sense into this silly little girl." (Which had the opposite of the desired effect.)

Posted by: Blue Girl, Red State (aka G.C.) on January 21, 2008 at 12:43 PM | PERMALINK
What are your sources? I don't doubt, just curious. So: the net effect is to have "Wall Street" owned by foreign governments with pull in the white House. I'm stupid: who gains as the market tanks?

It's a mish-mash.
Front page of the Wall Street Journal(and related articles within, excepting Editorials) over the course of the last year or so.
Links from Atrios' blog (he has a PhD in Econ after all) and others.

The "who gains", much as in the real estate market, is anyone who has liquid capital when the property or ownership stakes are for sale at bargain basement prices.
Instant oligarchy!

Posted by: kenga on January 21, 2008 at 12:46 PM | PERMALINK

By the way - the Carlyle Group, it should be noted, is in no way a foreign government. They just play one on TV!

I laugh, so I don't cry.

Posted by: kenga on January 21, 2008 at 12:48 PM | PERMALINK

So...at what point does a "deep recession" take that extra step to be a "depression"? -Praedor Atrebates

Not sure on that one, but the unemployment rate in the Great Depression was about 25% at the peak. The last major nasty we had back in 1980-1983 (a "double dipper" BTW) had unemployment up to about 14% at the peak. I think this is what we are looking at, but probably around 10-12% at the peak (my prediction) because OT worked is very high right now and you will see the OT go away first. But... a LOT of people have their bills structured around that OT income and that's going to prolong the duration. I bet this one will last a while.

Posted by: Doc at the Radar Station on January 21, 2008 at 12:53 PM | PERMALINK

a "CEO's recovery." Strong profits and low inflation, but coupled with flat real wages, rising poverty and high long-term unemployment.

Low inflation is an interesting thing. Anyone who borrowed lots of money at a fixed rate in recent years, wouldn't mind a little inflation, as long as they saw some of it in their income, too. Low inflation also reduces the penalty for not investing your money, and instead sitting on it. If housing prices stayed constant, but everything else inflated around them, that would also bring their relative price back to its historical place. (and which interest rate is it that most ARMs are determined by? is it the Fed's rate? If so, leaving that low keeps the ARMs low, drives inflation, eventually some of that lands in wages, and then perhaps people will be able to pay off their future higher rates in devalued dollars. The lenders, who get their money back in devalued dollars, take it in the chin, but someone's got to lose).

Anytime I hear some pundit declare "but nobody wants inflation", I think about these things, and wonder exactly what definition of "nobody" he (or she) is using.

Posted by: dr2chase on January 21, 2008 at 12:54 PM | PERMALINK

The official definition of recession is when GDP growth is negative for two quarters or more.

A little birdie told me that drudging along at 1% growth a quarter is a very bad thing...

Posted by: elmo on January 21, 2008 at 12:55 PM | PERMALINK

I'm torn here - there were no voices advocating caution - not that I recall hearing any way.
Posted by: Blue Girl, Red State (aka G.C.)

We were surrounded by voices advocating caution, some active and some passive. Books on real estate and personal finances, parents on both sides offering unsolicited advice, common sense, memories of the dotcom bubble, the sense that the merry-go-round had to eventually stop. I can still remember when my parents had a high double digit interest rate mortgage.

Posted by: SJRSM on January 21, 2008 at 12:55 PM | PERMALINK

You know what I hate? The word "recession." It's like if we don't mention Depression, we won't have one.

Posted by: craigie on January 21, 2008 at 12:56 PM | PERMALINK
So who promised them X amount of appreciation?

They played musical chairs, and now that the music's stopped they're left standing.

George Bush (but you have to say it out loud, with a Tariq Aziz accent). And Larry Lindsey, Alan Greenspan, and others.
The economy is doing great!!!

Posted by: kenga on January 21, 2008 at 12:59 PM | PERMALINK
Not sure on that one, but the unemployment rate in the Great Depression was about 25% at the peak.
thanks for the info Doc. Don't forget, people, our current and recent unemployment figures don't measure under-employment. Or people who've given up looking for work. Posted by: kenga on January 21, 2008 at 1:02 PM | PERMALINK

The US financial industry relies upon transfer of wealth payments from the poor to keep their profits growing. We should not be surprised that they are calling for more welfare from their representatives in Congress.

Posted by: Brojo on January 21, 2008 at 1:05 PM | PERMALINK

I was admittedly a neophyte at real estate. I'm just thankful that common sense ruled the day. It was a great little ranch house, and we wouldn't have lost it to foreclosure, since it wasn't beyond our means - it was about three kids in college and an ARM being all we qualified for with our down money. But I also probably wouldn't be cashed out and playing with the grandkid now. And I really love the apartment we eventually bought. So it all worked for me.

Posted by: Blue Girl, Red State (aka G.C.) on January 21, 2008 at 1:06 PM | PERMALINK

Blue Girl:
yeah.

Too bad I didn't stand up to my spouse.

Obviously she's prettier than your husband. :)


The last major nasty we had back in 1980-1983 (a "double dipper" BTW) . . .
Posted by: Doc at the Radar Station on January 21, 2008 at 12:53 PM | PERMALINK

Well, don't forget 91-92; another "Bush-special". Supply-sider policies at their finest . . .

.... because OT worked is very high right now and you will see the OT go away first. But... a LOT of people have their bills structured around that OT income and that's going to prolong the duration. ....

I changed jobs last year because my employer did away with OT.

.....I bet this one will last a while.....

The only thing that rescued us from the last one was $20/bbl oil, and the "tech bubble". (the "rubber-band" snap of black market oil production increases - after GW: Gulf War (George Walker) I.)

We will never see US currency that strong again, and they're already pumping it out of the ground as fast as they can, most major fields are not just in decline; they're in collapse.

And to have a "tech bubble" - you need a federal spending R&D bill, like Senator Gore's High Performance Computing and Communication Act of 1991. Unfortunately, if we did something like that now, the industry's been outsourced and consolidated to the point where it would be a useless waste - and there'd still be 2-4 years lag to get students into the field and innovating and building new competitive industries. (well, in '91, it was 2-4 years. Now? Maybe 10 years, after 8 years of neglect.)

Posted by: osama_been_forgotten on January 21, 2008 at 1:17 PM | PERMALINK

Tripp,

If you think that telling me I am amazingly stupid is somehow a shock to me, well you haven't met my kids.

I am curious why people with an ARM were expecting either X amount of appreciation or shocked by Y amount of interest rate rise. I'm not sure what we should do about that. (Especially since most of this was predicted by Paul Krugman and others.)

Shockingly, I find I have paid approximately $70,000 over a five year period for housing needs and I don't have any equity to show for that. So I've been screwed too, except in my case it's called rent. Where do I sign up to get my $70,000 back? Why is the signature on a mortgage loan some sort of guarantee of anything?

When most of us are defrauded by others, our only resort is to take them to civil court. I fully support helping out homeowners that lost their houses or equity to fraud to sue in civil court. And as I said, I think some nice windfall profits taxes to take from the CEO thieves and help payback those that they defrauded is reasonable as well.

To AK Liberal, yes, currently most lenders do use credit scores. I think that with a wave of foreclosures presumably coming, and that with a little competition over loans, there may arise a group of lenders that use other factors as well, just as certain colleges no longer use SAT scores as their prime determinant. In the future look for lenders to examine what internships you have had.

To BGRS, oh to have been a fly on the wall when your loan agent called you silly.

Once again Tripp, lots of people were hurt by the bubble. Not just the folks with the ARM whose home didn't appreciate enough but BGRS too who was priced out of the ranch that appreciated way too high. So to were a lot of folks that found they could no longer afford to live in the Bay Area suburbs, or the suburbs of many other places. (I lived in Berkeley for 5 years and watched a 2BR, 1BA, small home on the corner appreciate from $250K to $600K.) Lots of people were hurt financially by both the houses they bought or the houses they couldn't afford to buy. Why are we seeking to soften the injury to one group of people over the other just because they are more visible to us?

And once again, all of this is one reason among many I have great respect for Paul Krugman, who actually did predict much of this.

Posted by: jerry on January 21, 2008 at 1:24 PM | PERMALINK

Of course the markets are panicking, they just realized they are in deep doo-doo and the guy in charge is an idiot.

Posted by: fafner1 on January 21, 2008 at 1:30 PM | PERMALINK

obf, I don't think we will see the equivalent of $20/bbl oil again, but this will turn into a global recession and drop oil demand quite a bit. If we don't do any stupid shit with Iran, I'm thinking that oil might fall back into the $60-$75/bbl trading range which would certainly help. That would buy some time for us to invest in alternatives and do some conservation and infrastructure improvements.

With economic news being so dour, an Iranian adventure or a prolonged Iraqi stay may be in the cards. With unemployment rising, recruiting would see a boost and re-enlistments should go up. IOW, they would have the people they want. That raises the chances of some monkey business later in the year...

Posted by: Doc at the Radar Station on January 21, 2008 at 1:34 PM | PERMALINK

Part of the reason the financial markets seem to panic is they are relentlessly focused on the short term. They only look at how things are going to be 3-6 months from now.

This creates opportunities for investors like me who are instead looking 30 years from now (I'm 38, and therefore 25-30 years away from retirement).

Experienced mutual fund managers are salivating at the bargains that are now coming into view as the market continues to drop.

Posted by: mfw13 on January 21, 2008 at 1:35 PM | PERMALINK

LOL! You chicken littles crack me up.

Just to rub your faces in how wrong you all are, I'm calling up my fund manager and have him dump some of my bonds and shift the money into the stock market.

I'll let you guys know the ROI I haul home tomorrow night! You guys keep moaning in dispair in the meatime. LOL!

Posted by: egbert on January 21, 2008 at 1:38 PM | PERMALINK

My mother told me about the depression. Her family went from middle class to dirt poor in about a year. So did everybody she knew--the depression didn't give anybody a break. They didn't fully recover until WWII. If you want to know what the depression was like rent the movie Cinderella Man.

Posted by: corpus juris on January 21, 2008 at 1:42 PM | PERMALINK

Experienced mutual fund managers are salivating at the bargains that are now coming into view as the market continues to drop.
Posted by: mfw13

Amen to that. I'm shifting current mutual funds $$$ held to bonds and others, but shifting my monthly buy percents to weight stocks more. Buy low and sell high sounds good to me.

And with a steady stream of mutual fund and 401K buyers out there, I would think that would have a moderating effect on prices dips.

Posted by: SJRSM on January 21, 2008 at 1:44 PM | PERMALINK

I'm investing heavily in ammo.

Posted by: Blue Girl, Red State (aka G.C.) on January 21, 2008 at 1:47 PM | PERMALINK

I'm with Jerry. The people who will lose most in the coming real estate "re-valuation" will be those who take the bailouts or govt-subsidized refinancing of their houses, and are then still locked into a ridiculously overpriced property. If they ride out the downturn, in certain parts of the country (CA) they will be upside down in their home for the next 10-15 years.

Let the prices fall. People in trouble in their mortgages should walk away - if they bought anytime since 2000 or so, their equity is almost nothing anyway. (They might have thought they had equity, but that was based on illusory appreciation).

Let the banks take the hit, and look for another home (in the glutted market) in three or four years.

Posted by: luci on January 21, 2008 at 1:57 PM | PERMALINK

mfw13: Experienced mutual funds managers may be salivating about bargains, but they will be the ones selling, as their clients bail out and they need to raise cash for wave of redemptions.

This has all the makings of more than an ordinary downturn.

Posted by: bigTom on January 21, 2008 at 2:08 PM | PERMALINK

I'll let you guys know the ROI I haul home tomorrow night! You guys keep moaning in dispair in the meatime. LOL!

You have to post your stock picks in the morning in order to have any sort of credibility. Then tommorrow and throughout the week we will see who is moaning in dispair...

I, myself, will be averaging in all week on the UltraShort ProShares Exchange Traded Funds [ETFs]. QID, DOG, PSQ, just to name a few. And a short primer for you egbert -- these go up when the market goes down.

Posted by: ACK on January 21, 2008 at 2:15 PM | PERMALINK

We don't use the term 'Depression' or 'Recession' anymore. The economy simply has "issues."

Posted by: Ignore This on January 21, 2008 at 2:45 PM | PERMALINK

RSM,

So who promised them X amount of appreciation?

This was already answered, but I second (and third).

The entire financial network from Greenspan on down to the sleazy realtor and finance guy that tried to lasso me into something beyond my means, that's who.

I nearly got a divorce over it, too. My normally sensible wife was blinded by the vision of a mini-mansion in the country. Her parents, bankers but senile, approved the deal too.

And jerry I don't think you are shocked to be called stupid. You say stupid things. If you are looking for a scapegoat you are looking the wrong direction.

The sad fact is that foreclosed homes affect a lot more than the owners and the banks. They can drag a whole neighborhood down. People moving out of apartments - not so much. Not unless the whole building falls vacant.

If you want a government bailout you better take a lot of people down with you. Or be a corporation.
That is just one more reminder that for the average Joe there is only strength in numbers, and the powers that be will always try to divide us.

Posted by: Tripp on January 21, 2008 at 2:49 PM | PERMALINK

Well, whatever you do don't pay off your house. I did that, and instead of feeling better, I now felt like a houseguest. I keep waiting for the real owners to get home and kick me out. I never realised: you are what you owe! And that makes me nobody.

Posted by: Mooser on January 21, 2008 at 3:27 PM | PERMALINK

Mad Money Jim Cramer is warning that the end of the world may be near:

http://www.cnbc.com/id/22728371

Posted by: Speed on January 21, 2008 at 3:38 PM | PERMALINK

BigTom,

Yes, you're right, its does have the look of a more than ordinary downturn.

But guess what....that doesn't really affect me at all! We don't have kids to put through college and we own our house free and clear. Even if our portfolio drops 20% it doesn't hurt us....we've got 30 years to recoup whatever losses we take now.

And remember, a paper loss only becomes a real loss if you sell. If you don't panic and hold on tight, any downturn can be ridden out.

Posted by: mfw13 on January 21, 2008 at 3:40 PM | PERMALINK

mfw13,

How nice for you. So it doesn't affect you at all to live in a society where there are bread lines, apples for sale, and unemployment over 10%?

You've got yours so to hell with everyone else? You must be a Republican.

Posted by: Tripp on January 21, 2008 at 4:21 PM | PERMALINK

You must be a Republican.
Posted by: Tripp

God forbid someone actually owns their own house free and clear and has positioned themselves to withstand a downturn.

Posted by: SJRSM on January 21, 2008 at 4:28 PM | PERMALINK

How nice for you. So it doesn't affect you at all to live in a society where there are bread lines, apples for sale, and unemployment over 10%?

You've got yours so to hell with everyone else? You must be a Republican.

An odd statement since you want to bail out homeowners (typically republicans) and raise the drawbridge close the portcullis before the apartment dwellers (typically democrats) can get inside.

I'm still not clear on why you favor bailing out one group of citizens and not bailing out all citizens....

Posted by: jerry on January 21, 2008 at 4:38 PM | PERMALINK

Actually,

I'm a liberal Democrat, albeit one who is rather frugal and doesn't try to live beyond my means. We drive ten-year-old cars, have only one TV, save 10-15% of our after-tax income every year, and are completely debt-free.

The problem in this country is that people don't save, for a variety of reasons. They waste money right, left and center on useless gadgets (does anybody really need an iPhone or big-screen TV or $40,000 brand new car?) instead of living within their means.

Do I feel sorry for people who are going to lose their houses? Of course I do. But truth be told, most of them probably had no business trying to buy such expensive houses in the first place. They were trying to live above their means, and now they're having to deal with the consequences of the risks they took. No offense, but if you can't afford a 20% down payment on a house, then you shouldn't be buying a house yet!

Posted by: mfw13 on January 21, 2008 at 5:00 PM | PERMALINK

I believe that I said some time ago that you cannot borrow your way to prosperity.

Posted by: The Conservative Deflator on January 21, 2008 at 7:21 PM | PERMALINK

Mad Money Jim Cramer is warning that the end of the world may be near:
http://www.cnbc.com/id/22728371
Posted by: Speed on January 21, 2008 at 3:38 PM | PERMALINK

hee hee.

And the funny part is - if the end of the world is near, it's because we didn't put guys like him IN JAIL when they were colluding to rig the market to defraud investors - AS HE HAS PUBLICLY ADMITTED TO DOING!!

Instead - we give dishonest, evil fucks like this their own TV show.

A role-model for our children.

This is the sick, twisted society we live in. And if we self-destruct, we deserved it, and this is precisely why.

Posted by: osama_been_forgotten on January 21, 2008 at 8:13 PM | PERMALINK

mfw13, I understand where you are coming from. When the dotcom bubble popped and high-tech industries started being exported en masse and all the Big Money here started going to China, I saw the handwriting on the wall- we were all being sold out in Slow Motion and the Vampires were going to drain all the resources they could very carefully, using the best financial and media anesthetics. Don't alert the host!

So I was working on getting debt-free during this time as well. All I owe is a mortgage payment and that's it. Predictably the company I worked for finally went under and closed due to Chinese competition and UI barely makes the bills and COBRA health insurance payments are tapping my savings now. I've now joined the growing pool of skilled older workers whose prospects are pretty much fucked. To boot, now I can't relocate because I can't sell my goddamn house.

Posted by: Doc at the Radar Station on January 21, 2008 at 8:21 PM | PERMALINK

Why do I have the feeling that those who will be screaming the loudest asking for a bail out from Big Daddy Government over the next year will be the same Bush-loving shitheads who wholeheartedly supported the policies that got us into this mess?

There is no one who is more full of shit than a Bush-loving "conservative."

Posted by: bdrube on January 21, 2008 at 8:31 PM | PERMALINK

Its really much simpler than that...just don't live beyond your means and ask yourself if you really need something before you buy it.

The simplest test is if you don't have the cash to buy something (even if you use a credit card), then don't buy it. We use credit cards for the miles, but also pay off our balance in full each month.

What gets most people in financial trouble is their inability to emotionally separarte needs from wants, so they end up thinking that they need a lot of things which they really do not.

Posted by: mfw13 on January 22, 2008 at 12:58 AM | PERMALINK

I'm with mfw13. Also liberal Dem, also live within means.

Parents went thru the Depression and they trained me well (maybe too well!)

The malls at Christmas where I am were just packed with people buying everything in sight. Loads of stuff they didn't need.. can't even imagine who'd want some of that stuff.

Those people are now probably up to their eyeballs in debt. People do buy so many things they don't need. I guess advertising really pays... or it is a nation of sheep. Not gonna analyse it further, just adding 2 cents worth...

Posted by: Clem on January 22, 2008 at 6:11 AM | PERMALINK

Hey Egbert -

How was that ROI you were bragging you were going to make work out for you?

From the indexes it looks like you lost about 15 times as much if you made your call as you told us you would, then if you had just waited.

I was hoping that you would report back, like you said you would, but I guess it was just too painful.

You'll have much better luck with the new president, maybe you should wait another year.

Posted by: Jay Perry on January 22, 2008 at 6:49 PM | PERMALINK
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