The Great Depression Online




Great Depression Online Archive Issue:

In Memoriam: 2008

Great Depression Online
Long Beach, CA
December 30, 2008

Inside This Issue You Will Discover…

*** The All Inclusive Way to Prosperity
*** Alas It Was Panic
*** In Memoriam: 2008
*** And More

“Myths and legends die hard in America.” – Hunter S. Thompson

The All Inclusive Way to Prosperity

It seems so obvious, evident, and elementary.  Like blowing off the IRS or giving a Hells Angels Biker the middle finger, if you spend more than you make, you’re not only asking for trouble…you’re inviting it too.

But no matter how obvious something may be, there’s always a central banker, or a tenured Princeton Professor, who’ll fabricate a reason why it isn’t so.  There’s a “global savings glut,” he’ll declare.  Or the “wealth effect,” he’ll explain, is a healthy, even desirable, substitute to savings.

And no one but a real curmudgeon could argue with such justification…for there was no evidence to the contrary.

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~~~~~~~~~~~~~~~~~~~~~~~~~

Somehow, someway, for the last quarter century, trouble was summoned again and again…yet it always passed on the invitation.  It was as if summer vacation never ended.  Stocks always went up.  Houses too.  And spending more than you make was rewarded, admired, and respected.  It was the all inclusive way to prosperity.

Alan Greenspan even said so. 

Speaking before the U.S. Senate on February 16, 2005, then Federal Reserve Chairman Greenspan said, “…rising home prices along with higher equity prices have outpaced the rise in household, largely mortgage, debt and have pushed up household net worth to about 5-1/2 times disposable income by the end of last year.”

Alas It Was Panic

Yet as the years progressed, anyone who paused to consider it – for even a moment – could tell something was a little phony about this new prosperity.  It wasn’t that of generations past…the stuff of Carnegie or Rockefeller.  Rather it was the stuff of condo flippers, hedge fund managers, and financial engineers.  It was the stuff of phonies, imposters, and televangelists.

And as 2007 passed, some cracks in the financial foundation could no longer be ignored.  House prices didn’t go up; they went down.  By fall stocks petered out too.  Still the leaders assured the hoi polloi that all was well.

On March 13, 2007, Treasury Secretary Henry Paulson stated that the subprime mortgage fallout was “largely contained.”  And on May 17, 2007, Federal Reserve Chairman Ben Bernanke announced that “…the effect of the troubles in the subprime sector on the broader housing market will likely be limited.”

By 2008, however, it was apparent that the market had other plans than Paulson and Bernanke.

For Alan Greenspan’s mortgage debt mania – the same mortgage debt that puffed up the housing bubble – began to fail like an unreinforced block masonry building in an earthquake.  And the debt instruments comprised of these mortgages, which had been mixed up, spread out, and sold the world over, became more suspicious than a smiling politician.

What were they worth?  Were they worth anything?  No one seemed to know…not even the convoluted pricing models of Nobel Prize winning economists.

And suddenly an emotion that had long since been a relic of a former era appeared.  In fact, it had been so long since anyone had experienced it, no one could quite define it at first.  Alas, it was panic.

Bear Stearns went belly up at the end of March.

On May 16, 2008, Paulson told Washington business leaders “…we are closer to the end of the market turmoil than the beginning.”  Less than two months later, IndyMac Bank failed…marking the fourth largest bank failure in U.S. History.

But that was nothing.  For on September 15, 2008, Lehman Brothers went bust and several days later AIG was granted an $85 billion dollar bailout…effectively nationalizing what was the 18th-largest public company in the world.  Ten days later Washington Mutual – the largest savings and loan in the U.S. – disappeared from the face of the earth.

The stock market then crashed, with the S&P500 falling more than 48 percent from its October 9, 2007 high.  And by the end of the year Detroit’s storied Big Three were panhandling Senators in Washington.

Through it all, numerous government bailouts were attempted and numerous new acronyms, like TARP, CPFF, MMIFF, TAF, were created to “reflate” and “reliquify” financial markets.  Yet for their efforts, the government scored a big fat goose egg.  Not one of these bailout schemes has saved the world from itself.

In Memoriam: 2008

The year 2008 is as good as gone.  The grave’s already been dug.  But before shoveling dirt on its face, an epitaph reading is fitting…

In Memoriam: 2008.  The year that eradicated many myths and restored some near forgotten, but eternal truths.

There’s a fifty percent chance your doctor graduated in the bottom half of their class.  What goes up must come down.  Two plus two equals four…not five.  Stealing money from grandma is not without consequences.  For every action there is an equal and opposite reaction.  We aren’t smarter than our parents; in fact, we are probably dumber.  Spending more than you make is not the all inclusive way to prosperity…rather it’s a one-way ticket to the poorhouse.

For this clarity the world is grieving.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Some investors will make a stock market killing in 2009…but most won’t.  In fact, many will loose their shorts and their shirts.  But if you’re looking to get a head and follow the advice of one of the best stock market researchers on the planet, then you’ll want to check out Paul Tracy’s Market Advisor.  Right now, just for taking a look, you’ll get a copy of his latest report – Paul Tracy’s Top 10 Stocks 2009 and Beyond.  Find out all about it here: Paul Tracy’s Top 10 Stocks 2009 and Beyond.

 

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