"Unfortunately," said Larry Summers, "we are in an economic environment where we have more to fear than fear itself." And that was before yesterday's meltdown in Fannie Mae and Freddie Mac shares. I don't think I've ever read an economic report quite as sobering as this. Excerpt:
As home prices decline and Washington struggles to end the economic malaise, Wall Street is starting to send a sobering message: The worst is yet to come.One of the strongest warning signs came Monday, when shares of the nation's most important mortgage companies, Fannie Mae and Freddie Mac, plummeted. After falling almost continuously over the past month, in just one day Freddie Mac tumbled another 18 percent, and Fannie Mae lost 16 percent amid concerns that the companies would need to raise billions of dollars in fresh capital.
Fannie Mae and Freddie Mac are the nation's largest buyers of home mortgages, and traditionally the government's backstop for the housing economy. But with Monday's plunge, each of these giants has now lost more than 60 percent of its market value this year. The declines, along with a falling stock market and growing unease about the possibility of more red ink at big banks, reflect a growing conviction consensus among investors that the current housing slump will last longer, and prove more severe, than initially feared.
As a result, investors are signaling that they are far from convinced that any enterprise -- even ones with the strongest backing -- can successfully navigate these choppy waters, and that those who do survive will pay dearly.
"Everything points to a lot more bad news to come," said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. "If Fannie and Freddie are vulnerable, it means no one is absolutely safe."
This echoes something an economist friend told me over drinks in NYC recently: that it's going to be bad for a long time, and that there's no safe harbor. It's hard to know what to do. If I called my financial adviser, what should I tell him about the relatively paltry sums in my retirement account? Sit tight? Sell my mutual funds? Put the money in a mayonnaise jar and bury it in the backyard? Invest in a milk cow? What?
This is going to be a bad winter. As much as I gripe about the Texas heat, I suspect come January, I'll be mighty glad not to be facing the home heating bills folks north of here will endure.
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"Well, at least we've got our reliable jobs in the newspaper business."
Being sarcastic are we? I'm getting out after 18 years because no one can say how this will all shake out for the industry or if there will be an industry. It's easier to make other plans at 38 than to wait until I'm pushing 50.
People who say there could never be another Great Depression are stupid. In fact, it's entirely possible that we could experience an even worse crisis.
Consider, first of all, that the population of the U.S. - and the world in general - is much greater than it was during the Great Depression. There are far more people to take care of. In addition, the U.S. is now far more urbanized. During the Great Depression, many Americans lived on farms and were relatively self-sufficient. Another depression would find many millions of urbanites dependent on government welfare.
And how can we expect any relief from government when our government is so extraordinarily corrupt and dysfunctional? Will Corporate America be more interested in helping people flirting with starvation or using its political muscle to steal their homes and investments?
The world is also a much more complex place. People struggling with the original Great Depression didn't have to worry about global warming, a nuclear arms race or a phony war on terrorism.
The best way to deal with our economic woes is to launch a new revolution and take back our government. But it wouldn't be easy - our corporatized government has been making plans for just such a peasant revolt.
I'm not making specific predictions. I don't know when we'll get hit with Great Depression II, and I'm not even certain it will happen. But we're obviously in very bad shape right now, and it's equally obvious that the situation is continuing to deteriorate - and things will probably continue to go downhill for at least the next few years.
At the very least, we're obviously in store for some major pain - barring a miracle - and I predict we will experience something very similar to the Great Depression and possibly much worse.
Incidentally, I'm running for public office and will be writing an article about this topic and adding it to my campaign website at www.seattle-mafia.org.
David Blomstrom
Somebody, please tell me how Bank America can lose over 40% gross revenue, and the stock market rise? Did you know that BofA bought Country Wide (I think the second or third largest holders of mortages?)
What happened to Fannie and Freddie, magically fixed?
How about KNOWN FDIC takeovers that will occur soon; it's published. Blips on the screen?
What's holding it all together, bubble gum?
David, when exactly did they take our government from us? Exactly what form of government would you envision? And, if you're running for office, what will happen to your job when we decide to "take the government back?". Absolutely ludicrous.
This should be interesting...
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