This space is really for hockey but sometimes life intrudes and you really need to share those thoughts.
I'm a pessimist by nature but this really looks bad. This will end up being one of those 6-10 years recession and there is very little that can be done to prevent it.
This country has been on a 20 year conservative bend which has brought about serious deregulation and complete apathy regarding consolidation and monopolies by ever-expanding corporations. Bigger is better and let them do that as they wish, the search for profit will benefit everyone!
While that philosophy has some responsibility for the current situation, the main culprit is a mindset that invaded the financial world in those last 20 years: assets & stocks always go up in value.
Who cares if I am borrowing billions to buy crappy stocks, mortgages or buildings, in 10 years, their value will double and I will be making loads of cash!
No worries about those awful subprime mortgages and people not paying them, the value of those assets is great and will be worth so much in 5 years!
Crap is crap and will not become valuable in the future. Buying shitloads more of that crap to have a bigger pile is not making it valuable.
This is really what happened! All those financial institutions and banks went on a mega buying spree, buying anything they can, lending to anyone in the spirit of becoming bigger, with more assets and therefore more value... but once the market suddenly goes down steadily for the first time in over a decade... UH OH, that huge bunch of crappy stuff we bought just to bulk up our figures is suddenly not an afterthought but a serious anchor holding up everything.
And this is only the first wave... we seem to have weathered it and are working hard on restructuring and tightening up things but this isn't a closed economy. So far, this has mainly been an internal affair with credit and asset overvaluation but the tentacles of the giant financial spider are now starting to feel that poke:
Europe and Asia are now just starting to feel the effects of that first wave and their economy are starting to shrink and waver from the tight fists of those financial institutions with ties to America... on top of the strong effect the diminished exports to the US will have. That will tighten those countries' economies and after a while, this will be felt back in the USA with lower exports to those countries: 2nd wave bringing down our economy.
However, not all is bleak and I don't see this being as bad as the Great Depression. For one, we have a much better understanding of macroeconomy and agents acting on the overall economy but mainly because of the incredible diversity of our economy. Some sectors might go down but others will continue to thrive.
As I live in Las Vegas, let me also say a few words on subprime mortgages and foreclosures. Before the slowdown, things were completely crazy. There was so much construction going on that contractors had 2 year waiting lists. You could get as many mortgages as you wished without any problem and people kept outbidding each other for whatever was on the market.
... But who was buying those houses? Families looking to live the American dream? couples or single people looking to move away from renting? Seniors looking for a nice place to retire? No, the market was completely run by speculators, by house flippers. Those people thought buying and selling houses was a career and this is all they did. Let's buy this McHouse built shoddily in 2 months and resell it in 6 months for 20% more! because it ALWAYS increases in value right?? That's how things work in America!
I do not know of any family losing their home... Nobody I know has had somebody they know lose the house they are living in. All those foreclosures are from those house flippers who were poisoning the market by quickly buying then sending the market up (and up and up) by putting the houses back on the market at a premium.
Why would they bother looking at the house, making sure it's a good built and a nice place to live in?? They won't live there at all! They just want to own it to resell it... so better to buy it quick before that family comes for a visit next Saturday!
It was all extremely unhealthy and hopefully the credit tightening will push out those kitchen house flippers out of the market.
Going through a recession is a bitch but hopefully it will be a strong wake-up call to everybody about the realities of life.
No comments:
Post a Comment