I tell you what—find me one economist who correctly predicted the housing collapse, stock market plunge, and the banking industry effective collapse that thinks we’re due for a turn around in Mid 2009 and I might change my mind.
Well, if you admit that the economists did not predict those things, why should you believe anything they say now when they predict a long and deep recession?
I would not go so far as to say that I “correctly predicted” any of those things, but there are a lot of us who saw trouble on the horizon during the housing bubble, and stayed clear of it. I bought a house in 2002, when the market first started going up, and primarily because I saw that was happening. I had friends who invested $700K in real estate at inflated prices. I tried to convince them it was a bad idea, but they did it anyway. They camped out on the sidewalk when the builders opened their new phase so they could be the first in line to sign a contract for the new houses. When they got inside, they told the builder what they wanted, and were told that they would have to order this extra and that extra, to which they said “But we don’t want those extras.” The builder said that they would then go to the next in line, to which my friends said, “No, no, we’ll take the extras.”
Now they are all in foreclosure. But at the time, my wife was mad at me because I would not get in on the deal with them. I invested most my money in the stock market, and then when Etrade began to crumble in October of 2007, I sold the bulk of my holdings and put it into a money market fund. I took a haircut, but I feel pretty good about how I did. I did a lot better than most.
And I know some other folks who also came out OK because they also smelled the rot back during the bubble. Recessions can sometimes be a good thing because they expose economic foolishness and fraud. If not for this recession, we’d probably still be building homes at a crazy pace, and Bernard Madoff would still be stealing people’s money.
We’ve been fortunate that the effect of this recession has primarily been on the perceived value of our wealth more than the value of our output. And even that is somewhat misleading since while we thought we were all a lot more wealthy two years ago, it was largely an illusion. We still own the same stuff. It’s just that we know now that it’s not worth what we thought then.
It’s been real interesting talking to you. Not very often do I find someone who understands as much as you do about all this. Unfortunately, Monday was my 51st birthday, and I’ve got to go to a belated party. I’m getting to the age when it’s not cause for celebration, though.
Since you’re in management, I expect you to see problems, so I suppose it’s a good thing you do. But you’re in a position to fix them too. The faster you guys in management can adjust to new realities, the better. Good luck.
I tell you what—find me one economist who correctly predicted the housing collapse, stock market plunge, and the banking industry effective collapse that thinks we’re due for a turn around in Mid 2009 and I might change my mind.
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The keyword might be economist. Conspiracy theorists have been predicting this for four or five years now, anyway.