Real Estate Market / Inflation / Recession / Depression (Denver: mortgage, credit, debt)

[suzco]

Originally Posted by Bob from down south

This post makes me wonder what looked like a good buy to a bubble-crazed investor around Sept 1929. Or in 1932 when FDR declared the Depression over, for that matter.

I find it funny, in a macabre sense, that so many people seem to think that we can buy our way out of the ugliness to come by writing a $700 Billion check to the pigmen on Wall Street (for reference, that's more than the total monetary cost of the Iraq war to date) and getting on with business. The bankers will hoard the money we give them in the current environment, and come right back to the trough demanding more--count on it.

Six months ago, in this thread, there were people calling Jazz and I things like socialist, alarmist, Chicken-Little etc. Now we have headlines every day telling us we're now in the biggest financial crisis since the [First] Great Depression. The writing is still on the wall, and I strongly believe we're just seeing the first gale-force squalls of this financial hurricane. That's not coming from an alarmist...just a guy that can do math. We cannot borrow our way to prosperity.

Fortunately or unfortunately, messages got mixed. Conservative fiscal policy got combined with religious beliefs. Colorado in particular has been affected by that issue. Social policy and monetary policy have been offered as an all or nothing combination, when one has nothing to do with the other. Socialism, capitalism, etc. are monetary concepts; right to life, separation of church and state, etc. are social concepts. They've been juxtaposed by politicians in ways that harm all of us.

Colorado traditionally is live and let live, both fiscally and socially, but we've been losing that.

[cobmw]

Just for fun, do you know of anyone who has lost their job over this mortgage mess? I don't. My friends in business say things have been slow all year, but nothing dramatic is happening. But maybe if you doom sayers hire a sky writer to spread your pessimism you can start something.

[vfrpilot]

Lately I've been wondering about which situation is better, to be debt-free or in debt to your eyeballs. We're happy to be in the former, but what happens when the bank that holds your mortgage or credit card goes belly-up? Do you have to pay-up right now or is there anyone that comes after you or your stuff if you don't make your payments? Seems like this problem will be huge real soon.
BTW- A year ago, I read Jazz's posts with a bit of scepticism. His past posts look almost optimistic nowadays. It's pretty serious when congress is working on a weekend considering a bill that will very likely 'give' $750,000,000,000 to an industry that wreaks of criminal shinanigans. I don't know if Jazz even saw that one coming.

[jazzlover]

Let's put it in simple terms: Millions of people borrowed money they are not going to be able to repay to buy houses that they couldn't afford, built where they can not be sustained, relying on cheap energy resources that are now depleting at an increasingly alarming rate. To facilitate that, the government promoted cheap credit that promised (and now is delivering) high inflation and a collapsing dollar, itself borrowing and printing record amounts of money along the way.

To top it off, we have exported our manufacturing overseas, must rely on imports for most of our manufactured and consumer goods--even some foodstuffs now, and for 70% of the oil we use. All of this has made our currency so worthless that many foreigners no longer wish to hold it. There is not a whole lot they can buy from us in the way of goods any more, so more and more of those foreign-held dollars are being used to buy what is left of American assets--natural resources, real estate, farm land, financial institutions, etc., etc. Pretty soon, we will have regressed to what we were 250 years ago--a colony.

We Americans--all of us--are about to find out the difference between "paper" wealth and real wealth. The paper wealth is what figures show in our 401K's, savings accounts, etc., etc. Our real wealth is really only a fraction of that--probably less than half. This grinding, gnashing sound we all hear (and soon will feel) is the marketplace eliminating those "wretched excesses" of paper wealth from the economy. Unfortunately, for far too many people, paper wealth is all they have--they are so far in debt that they owe more than the real value of what they own. All that $700 billion will buy is the illusion that paper value might still represent real value. Like most illusions, this one will wear thin quickly--and the reality will seem all the more stark.

11 months ago, I said:

So, at a point where the U.S. has not even "officially" entered a recession, a major financial segment of the economy is in deep trouble. The Fed is trying to prop the mess up by lowering interest rates--effectively flooding markets with cheap credit. That is a fool's course, as that additional liquidity will only stoke inflation and further debase the dollar. If that does not fuel inflation fast enough, there is ample evidence in increasingly tight crude oil supplies, along with the weakening dollar, are going to send fuel costs through the roof--probably starting before the end of the year.

As Bob pointed out in his last post, I got "called out" on that one as being a Chicken Little alarmist. What I wrote then sounds pretty tame now.

Can it be called anything else but a nightmare, when--on this very night--Congress is debating the question of committing more money than has been spent on the war in Iraq to date, just to try to "prop up" the financial markets? Holy crap!

[jazzlover]

Originally Posted by vfrpilot

BTW- A year ago, I read Jazz's posts with a bit of scepticism. His past posts look almost optimistic nowadays. It's pretty serious when congress is working on a weekend considering a bill that will very likely 'give' $750,000,000,000 to an industry that wreaks of criminal shinanigans. I don't know if Jazz even saw that one coming.

I imagined that there would be some sort of financial "crisis." I must admit, though, that even I did not see the extent of the fraud and mismanagement in the mortgage industry--especially in how "toxic" assets were sold down the line. I should have--I saw firsthand how absolutely silly a lot of mortgage brokers were in their zeal to close loans--loans to unworthy borrowers for inflated amounts that should never have been made. I couldn't imagine, though, that those mortgages could be bundled and sold without at least a cursory review of their quality--but apparently they were. I don't think we know--even yet--the extent of essentially worthless mortgages out there--mortgages still being carried as assets on the books of financial institutions.

Unfortunately, this type of irresponsible investor and lender "euphoria"--the belief that markets would always go up--is exactly what happened prior to the 1929 stock market crash. I think what is coming next will be as bad or worse than the Great Depression because the speculative excesses this time around have been far more extensive and pernicious, and the economic and social fabric of the US is much weaker today than it was in 1929.

[cobmw]

The media, promoting their leftist politics, have been screaming "terrible economy" for years in an attempt to discredit Bush and gang - they hate him so much. Meanwhile our company added several dozen employees while the nation at large has been doing just fine. But you'll never convince those with an agenda. Are there some similarly motivated people busy posting here?

This problem will be worked out much to the dismay of those who would like to see otherwise. After the election we won't hear much about this "crisis" anymore.

[Bob from down south]

Originally Posted by cobmw

The media, promoting their leftist politics, have been screaming "terrible economy" for years in an attempt to discredit Bush and gang - they hate him so much. Meanwhile our company added several dozen employees while the nation at large has been doing just fine. But you'll never convince those with an agenda. Are there some similarly motivated people busy posting here?

This problem will be worked out much to the dismay of those who would like to see otherwise. After the election we won't hear much about this "crisis" anymore.

But I'm a rightist. For example, I think homosexuals are going straight to Hell, AIDS is God's tool to expedite the process, and abortion is murder rather than a form of birth control. But I also think our economic troubles are increasingly severe and being exacerbated by an administration that is corruptly pandering to its buddies in the banking and oil sectors...I don't need to be a leftist to see that.

Headline unemployment was at nearly 500,000 this last report...U-6 print is even worse, so clearly lots of people are losing their jobs. And yes, I know more than a couple of them personally.

And if the nation at large is doing just fine, why are the right-wing President and his Treasury Secretary on TV declaring a severe crisis that puts the entire economy at risk?? Sorry, but some company adding a piddly dozen employees isn't an indicator of broad national trends.

The "workout" to this problem is doomed to create a subsequent, even bigger problem. It's like flood control on the Mississippi River. As you continue further downstream, each town puts up a higher levee to stop flooding. Eventually, at some point downstream, the accumulation of excess can't be contained and instead of moderate flooding all along the upstream reaches, the mother of all floods ensues downstream. Think St Louis in 1993, but in terms of debt and unemployment instead of water.

[jazzlover]

Get this right: I am not a "leftist." In fact, I'm a staunch fiscal conservative. As such, I'm appalled at the spectacle before us. The American taxpayers are being asked, in no uncertain terms, to pay for the irresponsible behavior by private corporations and individuals. The fact that many supposed conservatives--including the President and his minions--have jumped on this bandwagon indicates to me that they--not I--have abandoned their fiscally conservative ideals. If, in fact, had many of those "conservative" individuals in the financial industry, as well as many borrowers, been financially conservative in their actions, we would not be in this mess.

"Conservative" means "conserve"--conserve financial resources, conserve natural resources. Unfortunately, far too many Americans--including many who call themselves "conservative"--have forgotten that. They got spoiled by "wretched excesses" and high living.

My philosophy can be summed up quite well by my "hero"-- Theodore Roosevelt. He knew what "conservative" really meant:

The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.

The death-knell of the republic had rung as soon as the active power became lodged in the hands of those who sought, not to do justice to all citizens, rich and poor alike, but to stand for one special class and for its interests as opposed to the interests of others.

Our aim is not to do away with corporations; on the contrary, these big aggregations are an inevitable development of modern industrialism, and the effort to destroy them would be futile unless accomplished in ways that would work the utmost mischief to the entire body politic. We can do nothing of good in the way of regulating and supervising these corporations until we fix clearly in our minds that we are not attacking the corporations, but endeavoring to do away with any evil in them. We are not hostile to them; we are merely determined that they shall be so handled as to subserve the public good. We draw the line against misconduct, not against wealth.
State of the Union address (2 December 1902)

To waste, to destroy, our natural resources, to skin and exhaust the land instead of using it so as to increase its usefulness, will result in undermining in the days of our children the very prosperity which we ought by right to hand down to them amplified and developed.
Seventh State of the Union (12/13/1907)

There is not in all America a more dangerous trait than the deification of mere smartness unaccompanied by any sense of moral responsibility.

[cobmw]

I stand corrected. It is nice to be among sensible people. But then why this aura of near glee over a problem that has yet to affect any but those on Wall Street? Tell you what, you guys sell your stocks, cash in your 401K's, and bail out of the dollar. I'll go with business as usual. Let's compare our situations in 6 months and see who is better off.

[sterlinggirl]

Originally Posted by cobmw

But then why this aura of near glee over a problem that has yet to affect any but those on Wall Street?

Have you bought groceries or filled up your gas tank lately? Just in case you didn't notice, your money is worth about 1/2 to 2/3 of what it was a few years ago.

To tell you the truth, I would react with glee if the government would actually let the housing market correct on its own and let the chips fall where they may. That's because I think the 'cure' will be worse than the disease, and fixing house prices at the current levels through continued bailouts will cause more pain than it resolves.