I consider myself pretty well read in econ. I’ve read tons of Hazlett, Friedman, Sowell, etc. But I am utterly baffled (maybe somebody can help) as to how giving a bunch of bad loans could lead to all this. Tell me that 50% of our homes are in default, and it makes sense. Tell me that, what???, THREE per cent are in default, and I’m really puzzled.
Saturday and Sunday night FOX news ran a special for an hour about the situation and how it snowballed into what we are seeing.
If everyone in America saw that show the election would be a slam dunk for Republicans.
Let’s say there are 100 million homes, so there are about 5% (let’s be generous) or 5 million mortgages in jeopardy. Let’s say the average loan is $400K, that is $2 trillion at risk
The reality is that markets are volatile and therefore not a direct reflection of any single policy or event. A daily snapshot of the market is not a reliable indicator of any given economy's health - it could jump back up 400 points in the next day given what we've seen over the last few months. Remember individual investors don't cause these huge swings (unless you're Warren Buffet or George Soros), institutional investors do. Right now there are a whole lot of fund managers out there desperately trying to maintain the unrealistic returns their clients have come to expect, and since the bubble has popped, 10-12% +++ just ain't realistic anymore.
Finally, look at the numbers that were released last week - increasing unemployment, crappy durable goods orders, and flat earnings from S&P stalwarts. Of course the general trend for the market is downward right now, the economy is substantially slowing as we speak. But it will come back as it always does, it's just a matter of when.
Substantial tax reform would hasten that recovery, but that would require our fifth grade classroom (otherwise known as Congress) to get off their collective butts and address the real problems instead of this constant showboating for attention during a high-stakes election cycle.
Gonna be a long couple of years on the road to recovery, that's for sure. Just keep in mind that an Obama administration will greatly extend the time before a meaningful recovery can occur.
because people (banks, foreign govts) were sold to freddie thinking they were risk free investments
There was an excellent show on Fox News last night that gave a lot of insight into how we got where we are. I hope they repeat showing it nightly until everyone sees it. In one segment they had an economics professor showing a simple (as can be) presentation on how this mess happened. If I understood it, basically, once the subprime (junk) mortgages started defaulting at an increasing rate, that made the market value of all the junk mortgages worth less and less causing all these institutions that bought billions of these junk mortgages packaged into debt instruments, to write down their asset values by billions and billions because they couldn’t sell them for anything. No one would buy them.