1 year ago: Stock market bottoms

[Skjellyfetti]

3/9/2009 The stock market reaches its bottom after the great recession of 2008 / 2009.

A day that will live in infamy.



The stock market is up 69.12% since last year.

CHEERS!

[dbackjon]

Hail Obama!

[mainejeff]

Most people wanted it to be worse (maybe still in the dumpster?) since they were against the bailout.

[Wedgebuster]

Perhaps the stock market thrives under socialism and illegal alien leadership nazis who hate freedom and love big taxes and gold chains.

[GannonFan]

Most people wanted it to be worse (maybe still in the dumpster?) since they were against the bailout.

That's the part I don't understand is why people were so against TARP. IMO, it was one of the best things the Bush/Obama admins did as it helped to settle people's worries that everything was going to crash. And heck, a year later, almost all of the TARP money has been repaid, with interest, save for the money that was spent to bail out AIG, GM, and Chrysler, with the last two definitely being two entities that arguably should've never been propped up with TARP money anyway.

If we could expect to bail out mortgages of people who are underwater and be paid back in full with interest a year later, I'm sure we would do that. Unfortunately, that isn't likely.

[GannonFan]

3/9/2009 The stock market reaches its bottom after the great recession of 2008 / 2009.

A day that will live in infamy.



The stock market is up 69.12% since last year.

CHEERS!

So like every recession before it, apparently our economy can recover. Shocking.

[ASUG8]

3/9/2009 The stock market reaches its bottom after the great recession of 2008 / 2009.

A day that will live in infamy.



The stock market is up 69.12% since last year.

CHEERS!

So like every recession before it, apparently our economy can recover. Shocking.

+1
It's almost like the economy is cyclical......weird stuff.

[AZGrizFan]

Most people wanted it to be worse (maybe still in the dumpster?) since they were against the bailout.

That's the part I don't understand is why people were so against TARP. IMO, it was one of the best things the Bush/Obama admins did as it helped to settle people's worries that everything was going to crash. And heck, a year later, almost all of the TARP money has been repaid, with interest, save for the money that was spent to bail out AIG, GM, and Chrysler, with the last two definitely being two entities that arguably should've never been propped up with TARP money anyway.
If we could expect to bail out mortgages of people who are underwater and be paid back in full with interest a year later, I'm sure we would do that. Unfortunately, that isn't likely.

Money that the DemiGod wants the BANKS to repay, for some reason.

[Pwns]

Obviously it is good that the stock market is recovering. But I'm still gloomy on unemployment going back down to single digits any time soon.

Businesses need real tax relief (not just tax credits for making hires). And Obama is certainly not inspiring confidence in business owners with talks of repealing the Bush tax cuts and raising the capital gains tax (doing either of those would likely just shrink revnues and hurt businesses).

Hopefully the economy will still be okay when the donks get a wakeup call in November and Obama will become a Clinton-esque president for the second half of the term.

[kalm]

So manufacturing has returned to our shoes, we don't owe any money to foreign lenders, there's no longer a trade deficit, real estate prices are rebounding and home equity has increased, Americans are no longer in debt, and the banks are all solvent?

Sweet!

[93henfan]

So manufacturing has returned to our shoes, we don't owe any money to foreign lenders, there's no longer a trade deficit, real estate prices are rebounding and home equity has increased, Americans are no longer in debt, and the banks are all solvent?

Sweet!

[kalm]

Here's another concern that we won't be returning to prosperity anytime soon. And this doesn't speak to how overbuilt we are when it comes to commercial property.

Published on Monday, March 8, 2010 by The Guardian/UK
Blame It on the Bubble
The financial crisis is just a sideshow – the real reason for the economic downturn is the rise and demise of the housing bubble
by Dean Baker

Politicians and the media continue to refer to the economic downturn as being the result of a financial crisis. This is wrong. We have 15 million people out of work because the housing bubble that drove the economy since the last recession finally burst. The financial crisis may have been good entertainment for those who like to see huge banks collapse, but it was a sidebar. The real story was the rise and demise of the housing bubble.

Those who claim that the real problem was the financial system and its faulty regulation can be disproved with a single word: Spain.

Spain is noteworthy because it now has an unemployment rate of more than 19%, the highest rate in any of the wealthy countries. Spain did not have a financial crisis. In fact, its well-regulated financial system is often held up as model for the United States.

Spain did have a horrific housing bubble. As a result, the share of construction in the economy rose from less than 8% of GDP at the end of the 90s to 12.3% in 2007. By comparison, it is typically less than 6% of GDP in non-bubble years in the United States. This rapid rate of construction led to enormous overbuilding, which meant that a collapse was inevitable with construction falling to far below normal levels.

The run-up in house prices also had the predictable effect on consumption. Because people believe that the run-up in house prices is based on fundamentals, homeowners assume that their newly created housing wealth is real and they spend accordingly. Spain's saving rate fell from just under 6% in 2000 to 3% in 2007. When the housing wealth created by the bubble disappeared people naturally cut back their consumption.

This is Spain's crisis. According to the IMF, housing starts in Spain fell by 80% from the peak of the boom. While total construction has not fallen as much (repairs and non-residential construction did not decline nearly as much), if construction in Spain fell by 50%, this would imply a loss in annual demand of more than 6% of GDP. That would translate into a drop in demand of more than $800bn in the United States.

Similarly the loss of housing wealth reverses the housing wealth effect. If consumption fell enough to return the savings rate to its pre-bubble level, then this would imply a loss in annual consumption demand of more than three percentage points of disposable income. In the US this would amount to more than $300bn in lost annual consumption.

There is no easy mechanism to replace more than $1tn in lost demand. This is why Spain's economy is in a severe slump right now. Note that just about all analysts agree, Spain's financial system was well regulated and it had none of the loony loans and outright corruption that pervades Wall Street and the US financial system. Yet, it is suffering from this economic downturn even more than the United States.

The moral of this story is that the problem is not first and foremost a financial crisis. It might be fun to watch the Wall Street and government boys sweat as they stay up late trying to keep the big banks from drowning in the cesspools they created. But this is all a sideshow. No one saved us from a "second Great Depression," they just saved the jobs and wealth of the Wall Street crew.

The economy's real problem is simply the loss of demand created by collapse of the bubble. Throwing even more money at the banks is a way to ensure that they don't suffer from the consequence of their own greed and stupidity. It is not a way to restore the economy to health.

Restoring the economy to health is about finding a replacement for the demand lost as a result of the collapse of the bubble. In the short-term, this means increased government spending and tax cuts. Deficits put money in the economy, and using the old-fashioned view that people work for money, we can determine how much money we need to spend for the government to get the economy back towards full employment levels of output.

In the longer term, we need to move towards more balanced trade, with higher exports and fewer imports making up for the demand lost due to collapse of the housing bubble. This will require a lower-valued dollar - everything else in the trade picture is just for show.

We do need financial reform. We have an incredibly wasteful and reckless financial industry. But bad financial regulation by itself did not give us 10% unemployment, nor would good regulation have been sufficient to prevent it. Just ask the workers in Spain.

© 2010 Guardian News and Media Limited

[GannonFan]

Here's another concern that we won't be returning to prosperity anytime soon. And this doesn't speak to how overbuilt we are when it comes to commercial property.

Published on Monday, March 8, 2010 by The Guardian/UK
Blame It on the Bubble
The financial crisis is just a sideshow – the real reason for the economic downturn is the rise and demise of the housing bubble
by Dean Baker

Politicians and the media continue to refer to the economic downturn as being the result of a financial crisis. This is wrong. We have 15 million people out of work because the housing bubble that drove the economy since the last recession finally burst. The financial crisis may have been good entertainment for those who like to see huge banks collapse, but it was a sidebar. The real story was the rise and demise of the housing bubble.

Those who claim that the real problem was the financial system and its faulty regulation can be disproved with a single word: Spain.

Spain is noteworthy because it now has an unemployment rate of more than 19%, the highest rate in any of the wealthy countries. Spain did not have a financial crisis. In fact, its well-regulated financial system is often held up as model for the United States.

Spain did have a horrific housing bubble. As a result, the share of construction in the economy rose from less than 8% of GDP at the end of the 90s to 12.3% in 2007. By comparison, it is typically less than 6% of GDP in non-bubble years in the United States. This rapid rate of construction led to enormous overbuilding, which meant that a collapse was inevitable with construction falling to far below normal levels.

The run-up in house prices also had the predictable effect on consumption. Because people believe that the run-up in house prices is based on fundamentals, homeowners assume that their newly created housing wealth is real and they spend accordingly. Spain's saving rate fell from just under 6% in 2000 to 3% in 2007. When the housing wealth created by the bubble disappeared people naturally cut back their consumption.

This is Spain's crisis. According to the IMF, housing starts in Spain fell by 80% from the peak of the boom. While total construction has not fallen as much (repairs and non-residential construction did not decline nearly as much), if construction in Spain fell by 50%, this would imply a loss in annual demand of more than 6% of GDP. That would translate into a drop in demand of more than $800bn in the United States.

Similarly the loss of housing wealth reverses the housing wealth effect. If consumption fell enough to return the savings rate to its pre-bubble level, then this would imply a loss in annual consumption demand of more than three percentage points of disposable income. In the US this would amount to more than $300bn in lost annual consumption.

There is no easy mechanism to replace more than $1tn in lost demand. This is why Spain's economy is in a severe slump right now. Note that just about all analysts agree, Spain's financial system was well regulated and it had none of the loony loans and outright corruption that pervades Wall Street and the US financial system. Yet, it is suffering from this economic downturn even more than the United States.

The moral of this story is that the problem is not first and foremost a financial crisis. It might be fun to watch the Wall Street and government boys sweat as they stay up late trying to keep the big banks from drowning in the cesspools they created. But this is all a sideshow. No one saved us from a "second Great Depression," they just saved the jobs and wealth of the Wall Street crew.

The economy's real problem is simply the loss of demand created by collapse of the bubble. Throwing even more money at the banks is a way to ensure that they don't suffer from the consequence of their own greed and stupidity. It is not a way to restore the economy to health.

Restoring the economy to health is about finding a replacement for the demand lost as a result of the collapse of the bubble. In the short-term, this means increased government spending and tax cuts. Deficits put money in the economy, and using the old-fashioned view that people work for money, we can determine how much money we need to spend for the government to get the economy back towards full employment levels of output.

In the longer term, we need to move towards more balanced trade, with higher exports and fewer imports making up for the demand lost due to collapse of the housing bubble. This will require a lower-valued dollar - everything else in the trade picture is just for show.

We do need financial reform. We have an incredibly wasteful and reckless financial industry. But bad financial regulation by itself did not give us 10% unemployment, nor would good regulation have been sufficient to prevent it. Just ask the workers in Spain.

© 2010 Guardian News and Media Limited

Good article, and I agree - the housing bubble and everything that went into it was and is the most pressing issue out of all of this. Wall Street is back up and running because it was never that bad off - housing, on the other hand, could take up to a decade to right itself after this. My folks are part time residents in Florida on the SW Gulf side and it's amazing when you're down there to see the extent of empty housing that sits around ground zero of the housing mess. And you're right about the commercial glut as well - we're just starting to see the impact of that. Nothing is going to fix that situation anytime soon, even though the stock market will certainly keep chugging along just fine.

As for what to do in the short term, I'm not quite on board with the increased government spending. When the traditionally errant CBO actually thinks that, in 7-8 years that the debt will be close to 100% of GDP, that's pretty worrisome - normally the CBO errs on the more optimistic side of things. Spending for spending sake is never a good thing - we need to be real exact in what we spend and where - just throwing money into the economy doesn't do it. And eventually, we're going to have to adopt our own austerity program and scale back a lot of what we do - it's just not sustainable to spend like this, at either the federal or state level. The tech bubble in the 90's masked those problems, and then we cavalierly ignored them in the Bush years and now into the Obama years. Spending has to be constrained - there's no way we can just spend our way to prosperity.

[kalm]

Here's another concern that we won't be returning to prosperity anytime soon. And this doesn't speak to how overbuilt we are when it comes to commercial property.

Good article, and I agree - the housing bubble and everything that went into it was and is the most pressing issue out of all of this. Wall Street is back up and running because it was never that bad off - housing, on the other hand, could take up to a decade to right itself after this. My folks are part time residents in Florida on the SW Gulf side and it's amazing when you're down there to see the extent of empty housing that sits around ground zero of the housing mess. And you're right about the commercial glut as well - we're just starting to see the impact of that. Nothing is going to fix that situation anytime soon, even though the stock market will certainly keep chugging along just fine.

As for what to do in the short term, I'm not quite on board with the increased government spending. When the traditionally errant CBO actually thinks that, in 7-8 years that the debt will be close to 100% of GDP, that's pretty worrisome - normally the CBO errs on the more optimistic side of things. Spending for spending sake is never a good thing - we need to be real exact in what we spend and where - just throwing money into the economy doesn't do it. And eventually, we're going to have to adopt our own austerity program and scale back a lot of what we do - it's just not sustainable to spend like this, at either the federal or state level. The tech bubble in the 90's masked those problems, and then we cavalierly ignored them in the Bush years and now into the Obama years. Spending has to be constrained - there's no way we can just spend our way to prosperity.

Good post.

[ALPHAGRIZ1]

It still isnt as high as where Bush had it.

game over

[BDKJMU]

Most people wanted it to be worse (maybe still in the dumpster?) since they were against the bailout.

That's the part I don't understand is why people were so against TARP. IMO, it was one of the best things the Bush/Obama admins did as it helped to settle people's worries that everything was going to crash. And heck, a year later, almost all of the TARP money has been repaid, with interest, save for the money that was spent to bail out AIG, GM, and Chrysler, with the last two definitely being two entities that arguably should've never been propped up with TARP money anyway.

If we could expect to bail out mortgages of people who are underwater and be paid back in full with interest a year later, I'm sure we would do that. Unfortunately, that isn't likely.

You left off Fannie and Freddie. Heck, I think between AIG, GM, Chrysler, Fannie and Freddie that's been over 300 billion, with likely more to come (Fannie and Freddie), and much of that $ the taxpayers will never see again

[BDKJMU]

Jan. 14, 2000, the Dow closed at 11,722.
March 10, 2010, the Dow closed at 10,567.

[ATrain]

Politics aside, I have gained 30% since investing in GE and Pepsi in early May '09. Wish I had bought some Ford then as well.

Show me the $$$$$$

[ASUG8]

I rarely make good decisions with my investments, but I'm glad I didn't listen to all the chicken littles last year who predicted Dow 4500. Instead of retrenching, I increased my 401K contribution and changed my allocation to a higher equity % vs bonds. It has paid off handsomely.