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Monday was the 350th trading session since the peak of the financial sector, as measured by the XLF exchange traded fund. Seemingly endless billions of dollars of pledges and actions have been pumped into the world financial system. The result?
Trading Session 350
Nasdaq 2001: -59.85%
XLF 2007: -57.63%
Dow Jones 1929: -56.23%
What exactly is being paid for, again?
Follow up:
It took the United States nearly half a decade to spend $564 billion dollars in Iraq - and that cost is still rising quickly. Dwarfed it is, unfortunately, by the amount of money just pledged by the United States alone - over $700 billion pledged by Congress which neglects to include the hundreds of billions of money pumped into the system by the Federal Reserve, nor does it include the billions in guaranteed loss coverage arranged by the Federal Reserve for numerous shotgun marriages of companies over the past year to keep the financial system from collapsing.
Yet, here we are.
Consider the companies that have disappeared, or are in the process of disappearing, in the past year alone:
* Bear Sterns (March 16)
* IndyMac (July 11)
* Fannie Mae (September 5)
* Freddie Mac (September 5)
* Lehman Brothers (September 15)
* Washington Mutual (September 26)
* Wachovia (September 29)
With failures racking up like that, this chart looks less surprising...
Let there be no mistake, even if everything feeding into this current crisis ended tomorrow, it would still take a lot of time and effort to get things back to where they were a couple of years ago - which in the event anyone forgot was still lagging years behind where things were before the boom and bust of the technology sector in 2001. While markets such as the Dow did peak higher post-2001 than before, those gains - much like any realized gains in America for most of this decade - were more the result of an inflating, weakening dollar than any sort of forward progress of our economy. The popping of bubbles today does an excellent job of showing just how fake the last couple of years were.
It must be noted that when people speak of bailouts and stimulus today they speak of fixing the parts of the system that have already broke, well past the point of breaking and prevention. Measures of "progress" are more measures of vultures picking over remains than they are anything good and new happening. Just take a look at the other side of a sunny California update about housing sales surging 50%:
Southern California home sales shot up by an unprecedented 65 percent last month from the dismal, record lows of a year ago, when a credit crunch slammed the brakes on home financing. September sales also posted a rare gain over August as price cuts lured more buyers. Foreclosure resales rose to half of all transactions.
If the only thing driving the housing market forward is the foreclosure market, that is a serious problem.
The death of the housing bubble, and the sudden end of value that is bringing to many people, is something that will not go away with the wave of any sort of magic wand - but instead with years of a concerted effort, and that is under the best case scenario.
Inflation data that isn't cherry-picked shows prices jumping by over 10% in a year.
Unemployment is taking off - soon to race past the heights of earlier this decade with an eye on the 8% seen in the early 1990's. This is of course a very conservative measurement of unemployment. "Real" numbers (on the rolls + fallen off) are currently hovering near double digits, so a return to 8% real unemployment could push the "real" numbers past 15%.
The root causes for all of this financial disaster have yet to be addressed or stopped. Adjustable rate mortgages are still claiming family after family day after day. When people go homeless, they are not contributing to the economy, which means there's less things being consumed, which leads to sharply lower sales, which leads to companies having to layoff to survive, which leads to less people buying less or maybe even losing their own homes... and the cycle continues.
Cross that with companies being careless enough to risk everything for the world - subprime lendees did it with the American Dream, corporate America did it with the Capitalist Dream: seemingly unending profits at very little risk. Those financial institutions, known as derivatives, are now also crashing down around them, which drives companies big and small under - sending tens of thousands of more workers home jobless, which only exasperates the problem more.
If anything, the trillions of dollars pledged or pumped into the economy as of now have done nothing more than prevent a Great Depression II. The reward for that is a protracted, lengthy, deep recession - one that has not nearly exacted all the pain it has left to give. With any luck the political winds will give us people intelligent enough to lead us through and out of this crisis - but it is a crisis we will still be talking about in 2009, 2010, and maybe beyond. This sort of damage can never be undone overnight, or over a year.
I'll leave you with one last video clip of how bad things are getting - this one from California's Inland Empire. If you have 12 minutes, I highly encourage the watching. It speaks sad, sad volumes.
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