tralfamidorgooglycrackers wrote:
The recession will happen if and only if everybody remains convinced
that there will be a recession.
Think about it. The US economy is as fundamentally sound as ever.
Unemployment is low, inflation is low, productivity is high. The
intrinsic elements that make the US economy powerful still exist.
This despite the naysayers and pundits, who, it should be noted,
have been wrong before.
The mortgage "crisis" is anything but that. Not for the people who
have been sitting on the sidelines with cash in their hands, waiting
to jump back in. Not for the banks, who actually make LOTS of money
on the foreclosures (the terms of those loans ENSURE that this will
be the outcome), not to mention freeing up funds originally lent at
ultra-low interest rates. When someone loses, someone else MUST
gain. It's axiomatic ...
Public economic expectations are key to any trend, up or down. The
negative slant that seems to be driving things just now is hardly as
ethereal as you appear to suggest, though.
Foreclosures in an atmosphere of stagnant sales as well as stagnant or
falling prices is hardly without consequence. Among other things, the
money that was sourced to finance the original mortgages continues to
demand a return even while the loans sit dead, waiting for
liquidation. Unoccupied, foreclosed property is notorious for
becoming expensive to maintain ... and holding out for a strong price
in a slow market can be fraught with ruin.
···
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It's undeniable that some real estate markets are in dire straights.
My wife's college roommate has a brother who's a financial
professional with Ford Credit. He's as straight laced and
conservative as they come (financially and socially).
Having been in their home for 10+ years, they've taken on a moderate
amount of added home equity debt to fund certain long term
expenditures. Relative to past appraisals, the total leverage was
well within the definition of conservative.
Ford is relocating their credit operations to TN. With the dismal
real estate market, the brother finds that almost all of their
untapped equity has vanished ... for a man in his early 50's, it's a
sobering reality. (While Ford is being generous in the relocation
package, they'll only step in to mitigate market consequences so far.)
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While it's without question that the mortgage firms that have gone
belly up executed very ill-advised lending standards, the impact of
those bankruptcies are far-reaching and impact some of the soundest
minded capital investment firms. This necessarily in turn leads to
more stringent underwriting capital ... making available lending
tighter for all.
The ripple-through effect of financial events is the underpinning of
economic theory and reality. Like you, I'm an optimist when it comes
to the medium and long term prospects of this country.
However, "exuberant" (to call on a favorite Greenspan word) business
practices have been relatively unchecked in this economy for years.
I've found it inevitable that something more harsh than the gentle
business cycles of the last 25 years might eventually come into play
to bring things back into line.
(btw, not all aspects of economics involve a "zero sum" game. In
fact, more often than not, business prospects are a win-win situation.)
- Harry