[Mavdog]

Originally Posted by dude1394

There is always an impending recession, you just have to wait long enough. They've been forcasting one for a year now I believe, and talking down this economy for 8.

I'm just trying to find the numbers that are showing how bad everything is, they keep coming in just fine.

I'm not seeing a recession in my business (electronics) and they are usually pretty predictive.

sure enough, if one continually predicts a recession eventually they'll be right.

two major pillars of domestic industry, auto manufacturing and housing, are in certain contraction. the cheap dollar is keeping the export market fairly robust, but an international contraction and that segment get's hit hard.

domestic investment peaked and is trending down.

government procurement (see above commentary on "priming the pump") is one of the few demand stimulators, up over 10%.

corporate profits are trending down, personal income is positive primarily due to increases in farm payrolls. factory utilization is trending down.

I don't see it to be honest. First it's individuals in their homes, not their 401K's that are undergoing this. And secondly I expect the housing WILL if you hold onto it long enough recover.

I would be interested however in where your comparison of the dot.com to the housing.com burst being larger?

I guess I just don't see it.

the housing industry represents a bit less than 1/3 of the economy. the abilty to keep liquidity to the credit market, ie make home loans available, is critical to limiting the affects. so far the dollars have been out there, but if there is severe price deflation of the homes that will stop. lenders will not be so quick to lend on an asset they can't fairly value.

I did read somewhere recently that much of the sub-prime loans were being made by banks as a response to the guvment pushing home ownership to folks who really couldn't afford them. Anyone else read any of that?

the banks didn't make these loans, there were a whole new group of non-bank lenders who made the loans. these were not regulated (countrywide for instance), and they would bundle the mortgages into cmbs (colateralized mortgage backed securities) that were then sold to investors, amny of which were banks.

it was wall street that bought these investments, based on the investment rating that the agencies placed. what went wrong is the ratings were too optimistic, the default risk was much, much higher than originally thought, and the owners of these securities now find themselves under water due to these new, realistic values.

billions and billions of dollars in equity at these banks and investment houses has been wiped out. with the resultant decline in home values, billions and billions of dollars in homeowner's equity has been wiped out.

poof. gone.

If not, why would banks make such bad loans? They are taking the risk?

these non-bank lenders have been portrayed as not caring about the risk, they weren't going to own the debt so all they were after is getting the signatures on the note.

the criticism is these lenders got the homeowner into the loan by using low "introductory rates" with promises to the borrower that when the real interest rates kicked in they could just refinance with the higher home value...but that didn't happen when the credit tightened and the home stopped appreciating.

so who is to blame? it's the borrower who didn't do their homework and understand the down side of taking out the loan under the terms they agreed to, and to the rating agencies who seemed to fall into the same overly optimistic trap the homeowners did, that there wasn't any downside to these mortgages.

so there are calls for more regulation, esp to the mortgage firms like countrywide. perhaps more involvement by fnma and frmc by raising the maximum amount they lend.

how do you regulate overexuberance?

by letting the market punish those who fall victim.