1 year Dow
It’s one of those cases where the numbers only begin to tell the story. While the forces that have been at work to cause the current economic mess that the world is in have been in motion for a few years now, it has been still less than a year since the crisis went from backwater corners of the internet to the front page of every major paper and the top story on every nightly newscast.
It’s impressive how “ancient history” this all looks now, but it was only October of 2007 when the stock market was setting all time highs – the Dow over 14,000. Those who knew that things weren’t going quite right were having a very hard time convincing anyone of any such thing, as the market pushed endlessly higher, even as the value of our currency continued to erode and the price of fuel was making more and more Americans suffer.
Still, less than a year since everyone finally heard the bubble pop. The actual anniversary is March 17th. On that date last year, Bear Sterns became the first American casualty of the Global Financial Crisis when the Federal Reserve arranged a shotgun marriage/bailout with the help of Bank of America at a price that was some 95% below what the company was “worth” only a week previous.
Since then the list of companies to falter grew more impressive with household names disappearing seemingly overnight into the black hole of reality.
- Fannie Mae (September 7)
- Freddie Mac (September 7)
- Lehman Brothers (September 14)
- Merrill Lynch (September 14)
- AIG (September 16)
- Washington Mutual (September 25)
- Wachovia (September 29)
- the entire nation of Iceland (week of October 5)
Case-Schiller Index Nov '08
…and that’s not counting the fallout from this fallout, or the fallout from that fallout, or – worst yet – the fallout from the root cause of this entire crisis: the housing bubble has not yet finished bursting.
At the left is the Case-Schiller Index, which sums up quarterly house prices for 10 (blue line) and 20 (red line) select cities in the United States. The average price of a home across the country has come down a little less than 30% since the start of the housing market downturn, and yet that decline has caused extraordinary calamities in the financial markets. While there are anecdotal stories out there of homes selling for 50, 60, and 70% below their peak prices – and bank foreclosures selling for even less – the average home price hasn’t caught up to these distressed levels just yet if, for nothing else, out of a disbelief by the people trying to sell these homes, whether they be sellers or real estate agents. The writing is on the wall but there are still many people out there who just don’t want to believe it.
The crisis has generally followed this sort of a flow: banks wanted to cash in on lending as home values streamed higher. Builders couldn’t keep up with the demand. As good borrowers dried up new fancy ways to lend to people who never should have gotten loans were invented. Profits surged. The mortgages in question were packed into complex packages and traded amongst many big companies in many industries, everyone assuming they’ll win big since land will never fall in value. Land falls in value. People who got these loans couldn’t pay them, defaults and foreclosures begin. Everyone starts coming for their money. The supply of homes explode. This pushes value down further, which starts the cycle again. Meanwhile family after family are getting tossed out of their homes. Entire suburbs begin to fade as jobs dry up, followed by money to keep things going. Less people buying less things brings down the demand on most everything else. As demand falls, a cascading series of layoffs begin in companies big and small all across the world. This is the current cycle we find ourselves stuck in. All indications are of this continuing to worsen.
Unemployment Dec '08
- As Detroit so painfully knows, the number of cars being sold has fallen to levels not seen since 1982.
- We as a nation are simply driving less than we have before – besting declines seen in the early 1980′s.
- The amount of shipping being done by trucks is falling at the 3rd worst rate seen since records have been kept in 1973.
- People aren’t eating out like they used to.
- New homes are selling at their lowest rate since the 1950′s.
Most importantly though is the chart right there at the right. The unemployment rate. Unemployment is up to its highest level since the early 1990′s and seemingly rising by the day. Each week and almost each day seems to bring new bulletins of layoffs coming from every sector across the country. Thousands of new layoffs are announced each week, and that’s just from companies big enough to earn blurbs on financial sites. The terrible tales of small businesses having to cut half of their staff or fold completely goes unreported if not for their size for the sheer volume of such places going under. It all adds up and the numbers continue to look more bleak.
Yet as the economic Rome burns down, a whole host of Neros are standing around hoping against the intermediate future of the American people that everything burns so that once the fire is out, they might be able to seek and win re-election. The band of traitors living up to this are the recently-defeated and largely swept out of power Republican Party. Even though President Obama and the Democrats’ plan to rescue the economy is supported by an overwhelming 66% of the population and even though Obama has personally sought out the support of Republicans in the House, so far the opposition party has thumbed its nose in the face of the Democrats and the American public and, turning to the leadership of Rush Limbaugh of all people, have decided that the best way forward is to hope that this President fails – and with him the economy, and with the economy the Democrats chances of holding their leads in the 2010 midterms.
Thankfully with the large margins held by Democrats in the House and Senate, the difficulty for getting economic rescue packages passed are much less than they would have been under the previous regime, but as we look a month into 2009 with the economy still falling off a cliff, it is sickening to imagine that there is still a band of people sitting off in the peanut gallery, cheering us all on to fail, to no better end than personal and political enrichment. Here’s to hope that such storylines will not continue to carry through this year.
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Props to the inherently-more-intelligent-at-this-than-I people over at Calculated Risk, and a second thank you to them for charting everything as most mainstream news sites seem to do a bad job at such indepth analysis.
