December 07, 2007

Washington Post business columnist: "It's Not 1929, but It's the Biggest Mess Since" - a house of cards that's about to come crashing down. Yup.


The MSM is really starting to get it now. So when do Wall Street and Main Street get the memo?

It's Not 1929, but It's the Biggest Mess Since

It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one.

We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen.

Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression.

Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There's even a growing recognition that a recession is over the horizon.

But let me assure you, you ain't seen nothing, yet.

If all this sounds like a financial house of cards, that's because it is. And it is about to come crashing down, with serious consequences not only for banks and investors but for the economy as a whole.

42 comments:

Malcolm said...

It’s a good thing we still have our industrial base to help pull us out of the bad times.

Oh, wait a minute, I forgot. We gave that away when we were having such a good time making fun of that crazy guy from Texas with the big ears.

Anonymous said...

Yet on their real estate chats the Post's reporters simply wouldn't say the house prices will come down in the DC area saying they don't have a crystal ball despite all the facts and what their financial columnist and experts say.

keith said...

Don't forget a significant chunk of the Post's revenues come from real estate ads

Anonymous said...

If this credit mess is going to come crashing down, how quickly will housing prices turn?
I live in an area where there are still 1400 square foot homes listed for 599k, on a 50x100 lot. No one is reducing their prices enough to be making a difference. Just wondering how long before it is safe to get serious again, or when these greedy and clueless homeowners get it.

Anonymous said...

They are all bluffing, hoping to wait it out. But the wait will be 3 years or much, much longer.

Everyone is colluding and holding their home off the market, but some Black Swan Event will force someone to sell.

Look at the outlying WDC/NoVa suburbs, Riverside and S.B. Counties outside of Los Angeles, Miami Condos an North Las Vegas for price reduction predictions.

40% to 50% off is a reality, today.

That's where your neighborhood is headed.

Sorry.

The Mortgage Guy said...

Anon, in my opinion, some time around 2010 the market could start coming back. If we are lucky that is...

Anonymous said...

From the ARM reset charts, 2010 is when it should start to stabilize. The recovery won't being until 2012or so and prices will never reach their highs again when adjusted for real inflation.

What too do? said...

My neighbor(a speculator) has been trying to sell his property for over a year and a half. Lofty initial price (mistake)then several subsequent reductions(another series of mistakes) and still no action.

Finally reality of sorts has sunk in and a drastic reduction to what I calculate he now has in the place. 25% below the original asking price. My assumption is he has capitulated to break even and move on. Problem is I don't see the reality of someone paying this reduced price either.

The next step will take even longer and that is to sell at a loss unless foreclosure happens first.

I think this mentality is the norm these day and this will help drag this bust well into 2012.

Right now all we can do is watch and learn as the downfall of these get rich quick amateurs unfolds.

Anonymous said...

I don't get it. How does this guy know for certain it won't be as bad as the Great Depression?

Veronica Lodge said...

RE: It's Not 1929, but It's the Biggest Mess Since" - a house of cards that's about to come crashing down...

The economic situation today seems even worse than that of 1929:

▪ We have a multi-trillion dollar background war in the Middle East.

▪ Government entitlements (Medicare, social security etc.) far exceed the government's ability to pay.

▪ The stock market is being manipulated in order to avoid an eminent crash.

▪ REAL inflation (not the government's lie) is probably over 10%.

▪ The dollar is becoming worthless to foreigners.

▪ The national debt is so high that the United States has become a bankrupt nation.

▪ The president of the United States is an idiot who does not possess the necessary charisma to assure Americans that they have nothing to fear but fear itself. There will be no fireside chats after the upcoming economic collapse.

▪ The Patriot Act will be used to enslave all Americans once the economic destruction of the United States is complete.

The crash of 1929 will seem like a cakewalk when compared to the crash that is coming.

V.L.

k.w. - southern ca. said...

The Washington Post article spells it out like it is ... this fall-will hit all sectors of our economy.

michael said...

"Just wondering how long before it is safe to get serious again..."

my wife and i have been looking for awhile. we just can't bite the bullet.

we live in the d.c. metro area. i expect a 40% off peek drip but am willing to jump in at 25% to 30%. we plan to live there a long time.

maybe catching a falling butterknife instead of a switchblade so to speak.

michael said...

"The Patriot Act will be used to enslave all Americans once the economic destruction of the United States is complete."

i was with you until this part. puh.....lease...the patriot act is the least of our worries.

get over it.

Mitesh Damania said...

Bush is the perfect personality type for those above him who control everything. He LOOKS dumb and innocent. But rest assured, he's deadly serious and effective when it comes to implementing his ideas. He makes bad policy yet makes it look like it was a mistakenly. Katrina, Iraq, CIA outing, spying, torture etc.. These are long term plans and they are not mistakes. The outcomes are as intended. Has he regretted anything he's done? Has he apologized and corrected anything?Do not fool yourselves!! The people in power are geniouses and YOU are the fools!!!

Roccman said...

oh yes - a hard rain is gonna fall.

Edgar said...

They did it on purpose, never forget that.

Anonymous said...


The president of the United States is an idiot who does not possess the necessary charisma to assure Americans that they have nothing to fear but fear itself. There will be no fireside chats after the upcoming economic collapse.


Yes, the sheeple need happy talk to keep them calm.

Anonymous said...

So many comments re no recession:

What if we don't have one..


What if some large interwoven financial knot gets knottier and it all just comes to a big thud or screaching halt:ie an event no one can mistake for anything but cataclysmic and we just realize
en masse there's no reason
for anyone to show up for work the
next day. What if it's not gradual,
but sudden. Feigenbaums number is
about when systems (all kinds) begin to oscillate or unravel let's say.Then they can flop to 1/2 or
zero (extinction/end ) or multiply
by 2 or 4 or 8. It can happen in a
relative heartbeat. Stock markets
are actually one of those systems.
Flow of financials could be a system, don't you think? It's when
the rate of change approaches
1/4.669...that this bifurcation or
doubling, etc can happen. 1/4.669 for all practical purposes is 1/5.
So when rate of change approaches
20% of the previous rate of change,
systems gets a little chaotic/comes
a little unhinged in human terms.

Are we there yet?????Anybody have
any figures???Feigenbaums number
is like pi....it's everywhere, in
everything.

Anonymous said...


Government entitlements (Medicare, social security etc.) far exceed the government's ability to pay.


Ponzi schemes created by your man FDR to push the debt onto the next generation. Well, it looks like the scam will come crashing down when 80 million baby boomers retire

Anonymous said...

Don't get me started on that Maryann Haggerty

Anonymous said...

"From the ARM reset charts, 2010 is when it should start to stabilize."

Are you high? There is another whole group of loans resetting in 2010 and 2011- it will take a few months thereafter for people to start losing.

Anonymous said...

We will not have a depresson again. Not with fdic, welfare, food stamps, unemployment insurance etc. Anyone who doesn't see this is a fool.

What we will have is Jimmy Carteresque stagflation. It will sting. It won't kill us. We'll come out of it stronger.

Anonymous said...

I took a look at a house today. Asking $499K. I like it. I told the agent I will offer $375K, bottom line. If the owners are interested give me a call.

Prices in my area are down about 5% from peak. If I get this at 25% below asking, I'll be content.

sk said...

You should do a post in your own inimitable style on the absurdities of this rate freeze. As we all know,
page 4 of:
http://www.americansecuritization.com/uploadedFiles/FinalASFStatementonStreamlinedServicingProcedures.pdf

to pass legal muster its constructed so that only those who can't afford to pay more or move out of this and INTO another govt. program called FHA Secure are eligible for the rate freeze. Most people have LTVs less than 97% so that won't disqualify them from FHA Secure and thus INTO rate freeze - so they'll need to get more inventive.

So people have the perverse incentive to DISqualify yourself from the FHA Secure program and so qualify for the rate freeze. Some ways you can do this are:

1. invalid SSN
2. illegal residency in the USA
3. be below legal age
4. unable to verify income
5. unable to verify assets
6. unable to verify liabilities

That's enough material for you to work on.

-K

mhrist said...

Hi guys,

The government does not specify that they need any agreement from the investors. This is because if a loan is approved for this program it is taken private by the bank, and sold to FHA who would probably be paying a full price. Now, technically this is not a loss. It’s the FHA buying a bunch of securities and putting them on their books.

Step-by-step case, someone calls the 1800 number and explains, ‘I have such and such loan.’ If the loan confronts to the criteria set, then the 1800 help person alerts the FHA or a new and coming GSE. It tells them, this and this loan from this and this bank is eligible. The FHA entity goes out and purchase the specific loan from the bank, hence taking it private. They then control the loan and can do whatever they want, such as freeze the rate. Since full price was paid and the loan was sold, investors don’t really have anything to do. They just get money back.

And none are questioning which value of the property is considered when applying. If the last appraisal value is, there will be quite a few eligible loans around. Besides, just as the banks has been letting people sell for less instead of foreclosing, maybe they plan to do the same so the loan conforms to the government requirements just as they do many times for Fannie and Freddie loans. If they do it fast they can probably lose only as much as prices have currently fallen.

Marty

Anonymous said...

If this credit mess is going to come crashing down, how quickly will housing prices turn?
I live in an area where there are still 1400 square foot homes listed for 599k, on a 50x100 lot
-------------------------
Let me take a wild guess. You live in Southern California, right?

brokersleaveyoubroke said...

I don't think we need to worry about 70's style stagflation. That was caused by a long costly war in Viet Nam which drained the treasury plus the cost of oil was setting new records because of middle east turmoil. Now we have all of the above PLUS the biggest bursting credit bubble in history, no leadership in washington and none on the horizon. We should be so luckey to get away with only stagflation.
P.S. Just to set the history straight, stagflation started under Nixon, continued through Ford and was fixed by Volker during the Carter administration. Remenber Ford wearing the WIN (whip inflation now) button.

tabasco said...

"Well, it looks like the scam will come crashing down when 80 million baby boomers retire"

baby boomers? retire?

Won't they need assets to do that?

Some may be able to, but there will be alot of baby boomers working for alot longer than they probably expected. It's hard to retire when you can't sell the largest financial asset you have (house) and you're staring down the barrel of major price increases in everything else that you may want to buy, and your supposed supplemental income provided by social security is being indexed to a B.S. inflation number every year.

The whole notion of the baby boomer's retirement causing some cataclysmic shift in the American economy has been totally overblown, with the very large exception of the aging population's effect on health care related industries and entitlements.

Anonymous said...

It's different in Seattle, eh?

Seattle Times -- Home prices slip to '06 level

The Seattle-area housing market is in a pronounced slump, with fewer houses selling, inventories climbing and prices returning to year-ago levels.

Anonymous said...

Join me in reporting Maryann Haggerty to the Post's Ombudsman: Deborah Howell at ombudsman@washingtonpost.com.

Enough is enough.

Paul E. Math said...

Before WWII, they used to refer to WWI as 'the Great War'. By 2025 they'll be referring to the 1930s as World Depression I. Get ready for WDII.

Princess Mononoke said...

You know I've always known our situation was bad, real bad. However, everytime I see pics like this one of the "Great Depression" I get the chills.... buuuuurrrr :(

It's so hard for me to even fathom the fact that I'm going to be re-living history! I heard so many stories from people I know who actually survived that time period and I NEVER for one moment actually thought that this too would be OUR fate!!!!

Princess Mononoke said...

Anonymous said...
The recovery won't being until 2012or so and prices will never reach their highs again when adjusted for real inflation.
December 07, 2007 5:52 PM

Doesn't the Mayan calendar stop in the year 2012??!!! Isn't that suppose to be a turning point for humanity??!! Hhhmmmm...

Princess Mononoke said...

Veronica Lodge, you have the funniest pics... Thanx for the giggles as I'm reading the comments. I never know what pic to expect. ;)

Princess Mononoke said...

Anonymous said...
>>Prices in my area are down about 5% from peak. If I get this at 25% below asking, I'll be content.
December 07, 2007 8:23 PM

You can't be serious??? Do youself a favor and just wait it out. My gosh what is the RUSH? Just because you think you're paying 25% less now is NOT quite the bargain when you figure in future losses.

Kadomount said...

tabasco said...
baby boomers? retire?
Won't they need assets to do that?

Actually, thinking about it for myself... If I had (in my late 50's or early 60's) a guaranteed income (however modest from SS and other) waiting for me in the face of a crashing economy... Why not shrug and head off to the lake and take the government largesse?

Bill said...

This video clip connects the current housing situation to its depression era cousin:

http://www.youtube.com/watch?v=umoYaS49Dnw

It was a tragedy then as it is now for many, many families trying to keep their heads above rising water.

Princess Mononoke said...

Anonymous said...
December 07, 2007 8:23 PM

I also want to add that the 25% discount you think you're getting today is actually the PRICE YOU are willing to pay today. Meaning you are "Marking to Market". That $499k is their ASKING price. So just imagine if you will, what the mark to market will be one year from now, etc.

Princess Mononoke said...

Bill said...
December 08, 2007 4:31 AM

Ahhh yes "The Grapes of Wrath". That is a classic! I remember when they made us watch that movie in Jr. High (now middle school) and write a paper on that era. Great movie...

Ruprecht said...

I just did a search for REO or lender owned property;
Countrywide has 618 in AZ; 742 in NV, 875 in FL and 3721 in CA.
They haven't really begun to get competitive on their pricing yet. Wonder when they will get serious about dumping them.
(although maybe they are serious about dumping property in FL; Prices start at $14,900. Not a typo)
Of course if Countrywide goes bankrupt, whoever takes over will be a lot more aggressive in liquidating the assets.

Peter T said...

> Yet on their real estate chats the Post's reporters simply wouldn't say the house prices will come down

At many papers, the real estate section seems to understand itself mainly as a cheerleader for real estate - if you want anything close to reality in real estate, you need to read the business section.

Anonymous said...

The baby boomers will have the biggest effect of all!!

If you look at demographics, our aging population will be a complete drag on our economy. This generation controls most of our wealth and knowledge, how do you replace that.

Japan has had a terrible time recovering.

The U.S. is in huge trouble and the gov. knows it. Aside from corporate financial gain, why has US stance on illegals changed so drastically. They will not fix the problem but they probably feel they have no other choice.

research: THE HARRY S. DENT FOUNDATION

The book he wrote "THE ROARING 2000'S" will explain it all.