It’s not 1929

Posted on: September 15, 2008

There is a story that Joeseph Kennedy, once the youngest bank president in the United States, stepped up  for a shoeshine and asked the shoeshine boy how the markets were doing. The shoeshine boy so impressed Kennedy with his knowledge of the markets, Kennedy decided the stock market was no place for him anymore. He cashed out. Months later came the stock market crash of 1929.

If anything is treated like a commodity, it will act like a commodity. If you bought a house in 1908, you’d get your money out of it by 1952. But in the years 2000 to 2006 house prices rose so steeply that the no-money-down possibilities in the United States (doesn’t work in Canada- I tried)  helped fuel speculation in housing prices. You could buy a house, put in new carpet, paint it, and “flip” it. Flipping houses became a sure-fire way to make money. House prices always go up, right? Wrong.

A PDF chart (here is a link– you have to fill in your name first) explaining this is available from Robert Schiller of The Economist’s Voice, but here is a good chart, referencing that work, on a blog called the Angry Bear.  As you can see, the rapid rise of house prices since 2000 is not the norm.

So American banks are melting. Should you collect your canned goods and gather your family in the basement? Maybe not. The good signs in this financial crisis are simply that there isn’t a panic. Gold is an indicator of panic. Gold was up $25 an ounce today, but is still trading below $790.

There will be pain. Lehman Brothers employed 28,000 and who knows how many of them won’t have a job by the end of the week or even tomorrow. They follow the Bear Sterns employees who are looking at a bleaker Manhattan Christmas as well.

In the financial news to come in the next few days there will be more consolidations and buyouts, but banks will fail. It’s a free market. In the capitalist system, banks are free to take risks, but business is business. Banks, even big banks, can fail. If a bank bets that house prices will stay up in the stratosphere, and mortgage paper will have value even if not everyone will always be able to pay their mortgage, then a bank can get burned.

I hate 20-20 hindsight quarterbacking, I’m just writing this post to say the sun will rise tomorrow. You’ll put milk on your cornflakes, you’ll buy gas, you’ll buy groceries. Someone is ready to pay you to do some work. But there are few get rich quick schemes that do not have a downside. On this September 15, 2008, we saw the downside.

Expect more banking regulation for American banks. Expect CEO’s not to get tens of millions of dollars in compensation a year anymore. Expect the United States to not worry about inflation anytime soon. Expect more people will learn how to save. Expect Manhattan apartment, condo and home prices to sink like everywhere else in the U.S.A. Expect Canadians to buy American vacation properties. Expect a record audience for the American presidential debates. Expect questions on the economy to be included. Expect people to listen carefully to the answers. Expect, if there is a vice-presidential debate (expect the Republicans to resist) for Joe Biden  to make intellectual moose manure out of Sarah Palin.

Thank you for reading AardvarkCola


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  • wordbeeps: No, he doesn't deserve an apology. Who tweets during a funeral? If you do, expect feedback. I didn't say the mourners were faking it. I think they we
  • Holly Stick: Look you fuckwit, are you too stupid to realise that Ghomeshi was an actual friend of Layton's, when you tweeted to him that the mourners were faking
  • aardvarkcola: Thank you. I see the rest of your message now. i'm honoured to to have your words on my blog. That alone is a delight. Lawrence


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