July 30, 2007

Manias, Panics and Crashes on "Discredit" and the scramble to unload at greater and greater losses



One more time, so you know what's happening, and what's going to happen.

There should be no surprises for HP'ers. None. It hath been foretold.

From the HP Bible "Manias, Panics and Crashes" by Kindleberger:


* Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

* The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

15 comments:

Andy in NZ said...

Okay after a year of lurking I am reading it! WOW, spot on.

And from today's Finacial times.

'Denmark, Britain and New Zealand are the economies most vulnerable to a fall in house prices, says a report released today by FitchRatings.

The credit rating agency says the combination of overvalued property and highly indebted consumers makes these economies especially vulnerable as central banks tighten interest rates around the world.'

look out below.

Anonymous said...

I checked the Asian markets this morning, they did not plummet. Time will tell for the U.S. market today.

Anonymous said...

My father in law in San deigo just started his addition and rebuild of his POS house. This is after 4 helocs that he pissed all the other money away. He is soooo screwed, or is he? Will the bank take it away if there are thousands and thousands of houses that are going under. I don,t know, but he lives in a dream world. He's a big fan of nascar, W,fox news and walmart

Anonymous said...

BWA HA HA HA HA! DOW is up.

You had your two days of fun. Now it's time for you to get back to you hovels.

Anonymous said...

Still not convinced that cash=USD,
or dollar denominated bonds. USD
not looking so perky this AM. And
you know, the longer it sits around
80, the worse. I think oil at 90 USD
by end of Aug.

-Matt C

Anonymous said...

.
.
.
.
.


Hmmm - kinda reminds me of the Gold and Oil Bubble we are having now...

1. Not making any more
2. Get in now - or you will be priced out forever
3. We are addicted to it - and will never change
4. It has no where to go but up
5. Everyone says so...

Marky Mark

Veronica Lodge said...

People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

In the end, the losers always transfer their wealth to the winners.

The winners left real estate around the last half of 2005.

The winners also got out of the stock market before July of 2007.

Next, the winners will use the loser's money to buy up crashed assets for pennies on the dollar.

It didn't turn out to be different this time, after all.

V.L.

Bubbleonian said...

http://tinyurl.com/37qdmv

American Home's shares fell 39%, to $6.39 in pre-open trading on Monday morning. Trading in the stock on the New York Stock Exchange has since been halted.

Cate said...

I've been expecting a 1926 style housing crash in Florida for a while but so far, I'm not seeing it. Sales are way down but prices are not. One of the hallmarks of a good crash is panic selling but it's not happening here. Prices are not really dropping. They might be going down between 1% and 3% but when you consider that they went up over 80% in 5 years, that price drop is negligible. Florida was one of the worst bubble states with incomes far lower than CA or NY so it doesn't make sense why prices are staying so high.

You people out there who understand economics better than I, please tell me why prices have not dropped in FL even though inventory is way up?

yuccatree3 said...

You people out there who understand economics better than I, please tell me why prices have not dropped in FL even though inventory is way up?
_____________________

Homeowners are just sitting on the sidelines, waiting for a "rise" in real estate prices and therefore not willing to sell at a the current lower price that they could get today. Wait until homeowners get desperate enough. Then they will HAVE to cut their prices if they want to sell....

Anonymous said...

florida.. it takes the sale of the average production at todays marker prices of 65? fruit trees.. orange.. to pay the average property tax. by arizona standards of productions

competitive devaluation said...

Anonymous said...
Still not convinced that cash=USD,
or dollar denominated bonds. USD
not looking so perky this AM. And
you know, the longer it sits around
80, the worse. I think oil at 90 USD
by end of Aug.

-Matt C

July 30, 2007 2:47 PM

------------------------

Gold and silver are the only true hard currencies. That doesn't mean it's a good idea to be 100% in the precious metals, but over time they should be far better stores of value than FRNs or the other debauched paper currencies. Just keep enough of your local currency of choice on hand to meet basic living expenses (rent, food, etc.) for a few months.

helicopter ben said...

Anonymous said...

Hmmm - kinda reminds me of the Gold and Oil Bubble we are having now...

1. Not making any more
2. Get in now - or you will be priced out forever
3. We are addicted to it - and will never change
4. It has no where to go but up
5. Everyone says so...

Marky Mark

July 30, 2007 2:55 PM

--------------------

Hmm... lots and lots of paper money (dollars, euros, yen, pounds, etc.). More being created every freaking day, at double digit percentages every year.

Not so much gold. Only created in supernova explosions.

Which is overpriced relative to which?

Seems like we've got more of a dollar bubble, in the process of bursting.

Anonymous said...

Oil will drop to $10 barrel because nobody uses it anymore. LMAO

keith said...

The famed economist, Charles P. Kindleberger, author of over 30 books, including the great title “Manias, Panics, and Crashes: A History of Financial Crises”, appears to have spent his final days clipping out newspaper articles in order to corroborate his intuition of a mounting real estate bubble.
This is no small bit of trivia as Kindleberger not only lived through the Great Deperssion, but was an active and astute economist publishing works throughout the 1930’s and onward.

The following is an excerpt from an interview with the Wall Street Journal published less than a year prior to Kindleberger death in July of 2003:


The object of his greatest fascination today is the real-estate market. For weeks, Mr. Kindleberger has been cutting out newspaper clippings that hint at a bubble in the housing market, most notably on the West Coast. Nationwide, median home prices are up about 7% from a year ago, even though the stock market has tanked and the economy has floundered. Over the long term, economists agree, housing prices can't continue to outpace growth in household incomes. Mr. Kindleberger says he isn't certain there is a housing bubble yet, "but I suspect it is."

The trick with spotting real-estate bubbles, he says, is that they don't always spread. In 1925, for instance, real-estate prices in Florida soared and crashed, but that didn't spread to the rest of the country. Yet he notes that something is distinctly different about the nation's housing market today, when compared with 1925. Fannie Mae and Freddie Mac, two large government-sponsored enterprises, own or guarantee nearly $3 trillion in mortgages, helping to keep the mortgage market liquid with cash. That is a boon to homeowners, but Mr. Kindleberger says he fears that Fannie Mae and Freddie Mac's deep nationwide presence in the market is fueling a speculative fire.

"Banks will make a mortgage and sell it to them. It means that the banks are ready to mortgage more and more and more and more. It's dangerous, I think," he says.

A Fannie Mae spokeswoman describes the argument as "preposterous," and notes Mr. Greenspan dismissed the chances of a housing bubble in testimony to Congress last week. Robert Van Order, chief international economist for Freddie Mac, says home prices might decelerate in the months ahead, but they're unlikely to crash because interest rates are so low, the inventory of unsold homes is also low and the economy has proven surprisingly resilient.

Yet Mr. Kindleberger isn't convinced. "If I was 30 years younger," he says, "I'd write a small book on Fannie Mae and Freddie Mac."

Given today’s real estate climate, the response by the Fannie Mae spokeswoman and the Chief Economist for Freddie Mac seem so ridiculously flimsy and comical.


It seems almost too perfect for Fannie Mae to offhandedly dismiss Kindleberger’s concern as “preposterous” by simply invoking the “Maestro said so” response.

http://paper-money.blogspot.com/2006/08/kindlebergers-last-bubble.html