Saturday, June 23, 2007

1929 2000 2007 2008 Same Different

The last time sophisticated financial investment strategies got ahead of regulatory mechanisms people were allowed to speculate in the stock market using huge leveraged positions. This contributed to the size and length of the Great Depression. We see a repeat of that today except it is hedge funds doing the speculating. Everyone responsible has failed explain why a hedge fund can do what we know causes asset bubbles. The cynical of us know why they don't explain but that's a different story.

The stock bubble burst of '29 didn't immediately toss the nation into the depression. That took a lot of misteps that won't be repeated. That's why we made a bunch of new mistakes in 2000 addressing the tech bubble. And just like the Great Depression we'd do things differently in retrospect.

Okay, financial trickery causes asset bubbles. I'm centuries late with that insight. We've done the same thing in housing. What makes it different this time?

22 comments:

Anonymous said...

Yeah baby Yeah!!!

First....

StephanieS said...

crap almost first

Rob Dawg said...

Just you and me anonyfirst.

StephanieS said...

New rule: First/murse does not count when you are anon. So FIRST!!!

Rob Dawg said...

StephS,
So close but this one was up for at least 10 minutes. It isn't like you were fighting the crowds. All those Left Coasters sleeping in.

soem dood said...

My Rosanna Rosanna Dana moment has arrived:

"Never Mind."


Not to make excuses (yes, I am an over-reactive idiot. Duly Noted.), but:

* the Talk Cast S/W interface mechanics of not showing "Listen" Button option until it is well underway, as well as,

* jeep gyrl's instructions that clumsily appeared to be not just for talkers, but everyone,

* waiting over 1/2 hour after the scheduled time and still no access,

* Prior heavy written trolling on EN, and therefore concern for trolls on air, leading to discussion of methods of controlling them,

All collectively led me to ASS-U-ME that the privately discussed talkcast had been closed to anon ears. I was wrong, CHJTS apparently had a serious road incident.

Sorry to hear that, and also sorry to have been a dolt.

[slinks back to corner]

flailing forward said...

Well, for starters, Nigel E. Swaby, award-winning blogger and nationally known aspiring web journalist, says that it's going to be different this time and there's nothing to worry about. If I recall correctly, Greg Swann is also of a similar opinion. Our very own international traveller Casey Serin feels that mutual funds will show 80% returns this year. Who are we to second guess great minds like these?

Rob Dawg said...

Both Swann and Swaby are interesting bubble case studies. Turn off the sound and just look at their actions and you get an entirely different story. They are talking up their respective public positions while at the same time massively reducing their allocations in those same areas.

flailing forward said...

Nigel, in April:

I am betting on another year of strong appreciation and seeing a slowdown the first of 2009.

(Nigel looks both ways to make sure that no one is watching, then invests the proceeds from the sales of his properties into Unilever on E-trade. He breathes a sigh of relief.)

TK said...

If I remember correctly Nigel publicly stated that he has no personal positions in RE. Look the most intelligent RE agents dumped their properties. My best friend and his wife got screwed by their Realtor - he got them into the house across the street from his at double what the people before him paid. Then he dumped HIS OWN house later that year ('06). I said "Why do you think your realtor sold his house? He said "He told me that it was because he had another place that he was closing on - but the deal fell through.'

Yeah right.

Now that my friend is trying to sell, The Realtor is the ultimate jerkoff - never there, late for open houses and still beating the drum that they can make a profit on the house despite nicer ones selling for 100K less. In other words I have come to two conclusions. 1. The real estate market is driven by quick buck assholes who go into hiding when the going gets tough. 2. Casey, Greg Swann, Nigel all represent my friend and his 2 kids and out of work wife trying not to ruin their financial future because "They made some LEGITIMATE mistakes and got overleveraged."

Casey Fannnnn said...

Re:
>>>...financial trickery causes asset bubbles. ... We've done the same thing in housing. What makes it different this time?<<<

This time, real estate will continue to appreciate forever, due to the Cavorite effect. It is perhaps Greenspan's greatest invention. While the Selenite problem has not necessarily been adequately addressed by the relevant equation, it is not believed by prominent authorities to be a problem requiring anything more than plugging one's ears and bellowing neener nanner nooner.

doctorwheatgrass said...

I would say the difference is that we are operating in a different world than 1929. The US economy is floundering by China and India are booming.

theDoc

Lou Minatti said...

What makes it different this time? The public entertainment value! Now, millions of people around the world can laugh at fliptards and hedgetards... in real time!

That's easy! said...

1) They aren't making any more land!

2) Housing *ALWAYS* appreciates!

Where's my Easy Button? I need to push it. Two times!

LOL

flailing forward said...

"Stock prices have reached what looks like a permanently high plateau." Irving Fisher, Oct. 21, 1929

"Splat!" Numerous wall street bankers and brokers, Oct. 29, 1929, after seeing their assets decline by 40% and "accidentally" falling out of their windows

Rob Dawg said...

The bankers won'y have the grace to jump this time. Instead they will collect even greater fees to manage the crisis.

flailing forward said...

Even worse, the flippers have nowhere to jump from. Jumping out the window of their overpriced single story tract homes won't be nearly as effective. They will just have to jump into their mosquito infested pools.

Alabama_Swamp_Donkey said...

Rob, I take offense to that. I work at a bank....well...in their IT dept...so like I don't really have a lot of expsoure to fees...but...yeah!

1929-one of the largest problems was buying on margin and/or credit.

2000-tech bubble burst because people over valued the true worth of tech stocks which bled over to other industries.

07-08- Real estate buble burst because we've overvalued our houses and the subprime mortgage industry which has overleveraged people in to thinking they can afford a more expensive over-valued house.

Egosumabbas said...

WERE ALL GONNA DIE! *defenestrates self*

serinitis said...

One of my pet theories on the current booms and busts is that the baby boomers are in their peak earning and savings years. And they are preparing for retirement. They have not saved enough for retirement yet, so they need to get an unrealistically high return on the money they can free up for their retirement.

Under this theory it is different this time, because baby boomers still have a lot of credit available and are going to search out and invest in the next boom and bust. This boom will blunt the effects of the current bust. One or two booms from now it will be back to business as usual (except that bust will have a lot of baggage carried from the previous busts)

Smart Dad said...

From a recent iaff post:
Gigantic foreclosure wave is just starting!...The huge amount of sub-prime adjustable-rate mortgages and other craziness in the lending industry is going to create the biggest wave of foreclosures world-wide in the history of man kind!!

If you believe that Casey is always wrong, the foreclosure rate should be bottoming out soon.

Anonymous said...

How semi-refreshing!!!

A real semi-Conversation!!!

FINALLY!!!

ROB DAWG IS BACKKKKKKKKKKKK!!!