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February 14, 2008
Is a Collapse in the Cards?
Myth: The crisis resembles the one that hit the U.S. savings and loan industry two decades ago, necessitating a multibillion-dollar government bailout.
Reality: $8 Trillion Bailout
Myth: The blame for the bubble in the housing market rests with former U.S. Federal Reserve Chairman Alan Greenspan, who kept interest rates too low for too long.
Reality: Explaining the Impact of Ultra-Low Rates to Greenspan
Myth: Because the current slowdown is due to the sharp cutback in the willingness of financial firms to lend, central banks can do little to improve the situation.
Reality: Banks wouldn't lend in 1992. The banks wouldn't lend in 2009.
Myth: Since almost all stock markets went up and down in unison during this crisis, international diversification is no longer an effective strategy for investors.
Reality: Europe crashed. Asia crashed.
Myth: Most of the decline in the prices of financial stocks can be explained by the huge write-offs of mortgage-backed debt.
Reality: Mortgage-Backed Securities Remain Toxic
Certainly over the past few years there was much foolish lending that had led to severe losses, and the economy will suffer in the short run. But actions by central banks will assure that this credit crisis does not morph into a full-blown recession or worse. And in the long run, saner lending and more reasonable home prices will lead to a stronger economic recovery.
Reality: The full-blown recession began two months earlier. Nothing down mortgages are back. The weak recovery continues to challenge the Fed.
Realtor.com Reports Active Inventory Up 25.9% YoY
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*What this means:* On a weekly basis, Realtor.com reports the
year-over-year change in active inventory and new listings. On a monthly
basis, they report t...
2 hours ago
6 comments:
Nice analysis!
remy,
I love the visual accuracy of hindsight.
I can't read most books without being within a foot from them. Even then I need glasses. However, hindsight lets me see into the distant past with perfect clarity, lol. ;)
Agreed! the housing bubble is great in the sense that we can now see who can be trusted as far as economists go ( a simple google search with "housing bubble" and the economist should do the trick. That said, some of those who were outspoken about the housing bubble may use their new credentials to try to mislead us with the next bubbles (gold, dollar collapse, china, russia) etc...
remy,
I'd vote Robert Shiller as most trustworthy. He's smart, humble, has a good track record, and to my knowledge has no vested interest to lead us astray.
Based on this post, you can pretty much guess what I think of his friend and counterpart.
By the way, Shiller recently stated that he was unsure if stocks or bonds would perform better over the next decade. Although Siegel has yet to successfully protect us from two stock bubbles and one of the biggest ongoing financial crises in the history of America, he's absolutely positive he can protect us now. How? By embracing risk AFTER the stock market climbed well off the bottom. Go figure.
The bubble lending of 2004-2007 was most impressive. Total added household debt exceeded $1.2T a year on average in this period, so it was roughly equivalent to sending a $1000 debit card to each household EVERY MONTH.
And people wonder why the economy crashed when the home ATM ran dry.
Morons.
Troy,
It is impressive math. It is even more impressive than 200 years of historical stock market performance. Go figure.
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