My younger brother, the MBA, is optimistic about the economy long-term.

[El Pinko]

He tells me he thinks that real estate will be in the crapper for another 6-9 months and then recover. He thinks investors will "swoop in" and rescue all the big investment houses and banks that are becoming insolvent.


I REALLY hope he's right.

[jlake]

1. Don't think so. Those investment banks that are tanking are holding

all of the funds investors would use to buy things up.

[bicentennial_baby]

8. zOMG! we agree on something!

[jlake]

10. Hey, it happens.

[bicentennial_baby]

12. It's weird out here, outside of GDP...

And yeah, I think we're looking at about 24 months of complete and utter suck, as far as the economy goes. And as a student of the dismal science, it's times like this that make me wish I were an English major or something. I hate knowing how bad this is. Ugh.

[El Pinko]

15. See, 24 months even is optimistic compared to what I'm feeling.

I'm thinking like a decade or so of suck, with unemployment around 15+% and at least 3 years of negative GDP...

[bicentennial_baby]

19. No, I don't think so, honestly...

I think that the most acute period will be around 24 months, and then the comedown/rebuild maybe another 12-24. It's going to take some major transformations in many ways as far as the Gov't and the Fed are concerned, but I do have faith that it is fixable, in the long term. In the short term, not so much. And, I think the various bandaids being slapped on it by the Fed and the * Administration are only going to prolong the pain.

[Adsos Letter]

36. Is this sudden agreement between you and bicentennialbaby...

some kind of canary-in-the-coalmine for the Apocalypse?

[jlake]

39. Bwahahaha We actually agree on a lot of issues but just have different opinions on how

to accomplish our goals.

[Adsos Letter]

40. hey, ya' never know...!

signs-and-wonders and all that...

[bicentennial_baby]

2. I wish my Econ profs were so optimistic...

I'm finishing up my BA in Econ, and...the word around the Dept is not pretty.

[malaise]

55. I always listen to Economists rather than MBAs

It's those Business Schools that have enabled these criminals. Of course the ring wing economists are no better.

[bicentennial_baby]

58. I completely agree...MBAs are a strange breed

You can even see the difference as an Undergrad, I have a bunch of friends who want to be MBAs. The difference between straight-up Econ majors and the others is striking.

[PDJane]

3. I would like him to be right.........

but I happen to think that the process of becoming an MBA does very strange things to normal people.

[petersjo02]

4. Well, George W. has an MBA too

for all the good it did him.

[lonestarnot]

35. bwwwwwaaa ah ah ha ha ha ha ha ha

[htuttle]

5. I have a younger bond-salesman brother like that too...

...he's a fool.

[marmar]

6. Granted I'm not an MBA, but I think he's way too optimistic on this one....

n/t

[BlooInBloo]

7. Genuine finance people don't think so.

MBA - heh.

http://calculatedrisk.blogspot.com/

[El Pinko]

11. I guess the fact that he has 6 figures in the bank, a McMansion and a high-paying job...

...makes it hard for little old $26K income, broke-ass apartment-living me to win arguments with him, especially when he has his credentials and I juat have what I've read online on various blogs.

My hunch is that he's wrong, but is it wrong to hope against hope that he's right?

[thunder rising]

18. If he has 6 "in the bank" cash it will be 5 in another year.

[dysfunctional press]

32. not if it's in the upper 6 figures.

although it may become more in the middle 6's.

[BlooInBloo]

27. CFA is a credential. Anyone can get an MBA.

[TML]

45. Great blog

I've read that one for quite some time because they're usually correct on financial matters.

[BlooInBloo]

49. Yup - they exhibit a thorough understanding of the field.

[BlooInBloo]

51. Oh yah - this one is also good....

http://bigpicture.typepad.com/

[Duer 157099]

9. But where is the money going to come from?

I'd ask him that. The only real option is foreign investment, which might sound like a rescue plan, but will amount to disaster long term.

Oil is not going to suddenly go back to $50/barrel in a year. The dollar isn't going to miraculously recover.

Ask him where the money is coming from, please.

[cornermouse]

13. I guess another 300 years and we'll recover from

what Bush has done to us. ...Unless someone votes another idiot into the White Hour between now and then.

[demodonkey]

29. But Bush wasn't VOTED in.... either time! nt

[wtmusic]

14. Average length of a recession is 11 months

And many think we're already 4 months in. The stock market will lead real estate out though, as it always does.

[El Pinko]

16. The problem is that there is nothing "average" about this recession

Most of the big banks and brokerages are technically insolvent...

[MikeNearMcChord]

21. I would ask your brother are the good paying jobs coming back?

Will wages finally go up? Inflation, under control? Yes the economy will come back, but this Great Republican Depression is going to be painful.

[El Pinko]

22. Seems to him and his ilk, the disappearance of those jobs has been a non-issue.

"Those people" just serve him and his friends frapps at Starbucks. I don't think he fraternizes with any poor folk except for me.

[wtmusic]

23. I'd like to see some support for that statement

Most of the big banks are doing just fine, they've become much stricter in their lending practices.

I agree that this will likely be drawn out. 10% of American homes are worth less than the paper on them, and the bad debt needs to be shaken out and written off where necessary. But banks will still be left owning hard assets.

[El Pinko]

25. Most of the big banks are heavily leveraged. It only takes a small run by depositors and

a spate of foreclosures to put them in a Bear Stearns situation.

The subprime debacle was just the tip of the iceberg. There are hundreds of thousands of Option-ARMs set to reset in the next couple of years.

I wish I was wrong, but there are so many negative factors feeding off one another that it just seems that things are going to spiral more and more.

[wtmusic]

31. The big boys are not "leveraged" at all

The financials of Wells Fargo, Wachovia, Bank of America, Washington Mutual etc are solid. Most of them no longer make subprime loans; BofA never did. Resetting ARMs will only be a problem if there is less value than the mortgages are worth, and that right now is, at most, 10% of US residential real estate.

There may be a lot of people on the street very soon, and who knows what kind of fallout that will have. But most are people who bought more than they could afford to begin with.

[girl gone mad]

46. Not really.

Wamu, for one, is most definitely not "solid".

WaMu's Big Exposure in California and Florida

Killinger, who earned spare cash rehabbing homes while attending graduate school at the University of Iowa, also strived to be a top player in mortgages. He acquired subprime lender Long Beach Mortgage in 1999 and made many of the aggressive loans that have now come back to haunt the industry.

On Jan. 17, WaMu has indicated it will post loan loss reserves of $1.6 billion for the fourth quarter, four times the amount of a year prior. Nonperforming loans were 1.65% of WaMu's assets in last year's third quarter, twice the level in 2006. That compares with 0.88% of assets at Wells Fargo (WFC), 0.63% at Wachovia (WB), and 0.43% at Bank of America—all of which have focused less on home lending.

Some 70% of WaMu's loans are in California and Florida, two states with sinking property values and an abundance of risky loans. WaMu still has about $20 billion in subprime loans, $5.8 billion of which could reset at higher rates over the next three years.

...

With WaMu's default rates climbing, government investigators are taking a closer look. In November a lawsuit by New York Attorney General Andrew Cuomo accused WaMu of colluding with First American (FAF). The AG contends First American inflated the value of mortgage appraisals so WaMu could increase loan values. First American said the allegations in the complaint had "no foundation in fact or law." After the lawsuit, WaMu severed its relationship with the firm, saying it was "surprised and disappointed by the allegations in the complaint."

It's not WaMu's only legal headache. In January it was one of 20 lenders cited in a lawsuit by the city of Cleveland. The suit says lenders created a "public nuisance" by making loans to borrowers who couldn't afford them. Killinger has now focused his strategy on WaMu's 2,200 retail branches. WaMu is selling more credit cards, checking accounts, and services for small businesses. In short, if it survives, WaMu may look a lot more like those stodgy bankers in the suits.

http://www.businessweek.com/bwdaily/dnflash/content/jan...

[wtmusic]

47. IMO to draw parallels between brokerage houses like

Bear Stearns and savings and loans is a mistake.

Bear Stearns had a good old-fashioned run on it last week -- investors freaking out because their subprime fund they expected to double their money on overnight was worth nothing. The problem was primarily greed and overexpectation.

But the assets underlying those funds, the real estate itself, is a different story. We can't pick up and move tomorrow if we decide our home is a bad investment, so the real estate market is typically the turtle to the stock market's hare. Panic plays a very small part. That doesn't mean there aren't serious problems (and WaMu has always been somewhat of a shady player among the bigger home lenders) and that they are going to go away tomorrow. But after living through several recessions my pessimism is tempered somewhat by the fact that predictions of national economic ruin are characteristic of every one.

[salin]

59. They have different leveraged debt - corporate leveraged debt

who do you think has financed the mega mergers of the past two decades (escalating in the past couple of years)?

As the economy gets shakey - I think that there are some more chickens to come to roost per the vast leveraged corporate debt. Remember the "special purpose entities" (can't recall the technical term) that came out in the Enron implosion - little spinoff ventures, financed by banks (like JP Morgan) - and backed by... Enron stock so as the stock value plummeted, there was no value behind the assets that backed the financing. Just think - the "securitizing risk" vehicles and structures have only gotten more complex, rather than less complex/transparent (which should have been the case) since the Enron implosion.

I think this is an elephant in the room that no one dares speak about, let alone ponder - as our economy continues to weaken.

[marmar]

17. But I don't think this is an average recession.....

n/t

[Speck Tater]

20. MBA's believe what their professors taught them to believe.

A lot of high-power financial experts were saying the same kind of things in early 1929.

[Kittycat]

24. This is how it works...

As long as we're spending 12B/mo in Iraq, our government has zero opportunity to create public works jobs (infrastructure, technology development for green jobs, etc). They're also saying we're only 1/3 through this mortgage crisis - wrap your mind around that nightmare, and buy some extra locks. Because we're so dependent on Oil, and it's currently priced in dollars - and the dollar is essentially worth the value of a roll of toliet paper... We're screwed there as well. So then we have to go in and change the tax structure on corporations - starting with Oil. We also need to bring tax revenue back in to the country, by cutting off off-shoring. However, that is going to cost some jobs in the short term - but the return will be greater, so I call that a wash over short-term. Then we have to look at the food crisis coming down the pike. Rising cost of feed, has severely impacted cattle/livestock rates. Wheat, Corn, etc, etc... The looming trucking crisis is also on the way, thanks to rising diesel and stagnant wages - now coupled with the threat of Mexican truckers getting free passes to haul...

You know - I could go on and on and on... But to sum it up - I disagree with your brother. Buckle down, we're in for a hard ride.

[Warpy]

26. I think he might be a little too optimistic

Bad paper will be resetting through 2009, and it's the worst paper of all, those jumbo "liar loans" they were making in hot markets just before the whole thing fell apart.

Those were bad enough, but the loans got snapped up by hedge funds that cut them into pieces and shopped them around as various exotic securities. Nobody knew exactly what those securities were or how they should have been valued, but they allowed people who depended on earning a certain percentage for brokerages to keep their jobs.

Now institutional investors are looking at their asset columns and realizing how much they have tied up in what is essentially worthless paper backed by a bunch of bad loans.

This one isn't nearly over.

The housing crisis will also tend to feed on itself, as oversupply of unsalable stock plus abandoned properties drag down values for some time to come. A whole lot of people who owe double what their houses are worth will be mailing in the keys and going back to apartment living for the duration.

They're all trying to happy talk each other right now, realizing that pink slips and trying to make a boring living doing something else for peanuts is in their none too distant future.

[Firespirit]

28. Wages, wages, wages

Tax the living shit out of the wealthy; that's where the money has gone the past 7 years, into their assets and tax writeoffs in the Bahamas. Get that money out of their bank accounts and back into the economy where it can do some good.

Revitalize the job market. Pay people what they are worth and get incomes to match the rising cost of living.

The crisis we are seeing is a direct result of wealth flowing from the bottom to the top. Surprise surprise, if the bottom becomes impoverished, it actually can take down an economy that is based on debt. I don't see why this couldn't be predicted by the economists.

[Warpy]

30. That will probably be easier said than done

and at least two years into the next administration when the corporatist president's back is to the wall and there are angry mobs outside the gates.

Remember, governments are reactive.

That gives us a minimum of 3 years of a totally sucking economy before steps are taken to reconstruct a viable one from the bottom up, the only way it ever works.

[bicentennial_baby]

33. I agree, that's pretty much what I said above...

I say 3-4, maybe 5. it's going to suck badly. I just hope I can get through Grad school while it's going down.

[Hannah Bell]

57. Of course there were economists who could predict it.

When it's impossible to believe people could be so stupid, we might consider the possibility that - they aren't.

For example, when Glass-Steagall was repealed, enabling the trading of loans (remember when banks had to hold their own loans & suffer the consequences of their own poor decisions?) - do you think no one realized it would open up huge potential risk? With the example of history & expensive Ivy League degrees?

Of course they knew.

The financial integrity of "the american people," & even of "america" itself, isn't the interest of the folks who run the show.

How many examples do we need before it sinks in.

[girl gone mad]

34. He's an MBA.

I wouldn't expect anything different.

[Manifestor_of_Light]

37. I think I know who his faculty advisor was.

"Clap your hands if you believe..."

Tinkerbell???

[sutz12]

38. Sure, if by long term he means decades....

[PylesMalfunction]

41. You know what really pisses me off?

The Dems will come in and clean this awful mess up and then America will vote in a Repug to fuck it all up again.

[chimper]

42. He is NOT correct i'm afraid.

http://www.democraticunderground.com/discuss/duboard.ph...

[Strelnikov_]

43. "Wall Street fears for next Great Depression"

http://www.independent.co.uk/news/business/news/wall-st...

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."


Futures so bright, I gotta wear shades . .

http://www.youtube.com/watch?v=wvIAyxpjEuc

[TML]

44. He's Not

Investors would already be snapping up the properties in my neighborhood if that were true. I asked my father, who used to own rental properties before he sold them, when we should jump back in the market. We both agreed on 2010 or 2011, despite the fact he doesn't need a mortgage to buy a rental property or two.

Neither of us think we're anywhere near bottom yet. Most investors need financing of some sort to get their foot in the door, and a huge chunk of people who invested in properties during this bubble period likely weren't "prime" borrowers. They were probably "Alt-A" borrowers, not good enough for prime but not bad enough for subprime. Those borrowers won't find easy financing now.

As for the big companies, those investors would be us. We'll foot the bill once the Fed steps in and saves them like they did Bear Stearns.

[seabeyond]

48. i was told cant predict recession and dont see it until after and say, .... lookie, last 5 yrs

been in a recession. is that true? would explain feeling since about 2003

[undeterred]

50. Never trust an MBA. They vote for Repukes and believe in fairy tales.

[JBoy]

52. Canada's economy isn't looking as bas as the US's.

Prepare to bow to your northern masters. Later we will be looking for labourers to work in our breweries, drive our zambonis and toil in our back bacon mines.

[OmahaBlueDog]

53. If, by investors, he means China, I agree

Real Estate was overbought, and continues to struggle in overpriced markets (SoCal, Miami). I think 6-9 months is optimistic, but I agree that, at some point, the books of bad mortgages and unsold property becomes attractive.

Here's what I see. China will float their currency (maybe as soon as this summer), and it will soar like a kite against the dollar. Chinese, Indian, Russian, and Petrostate investors will go on a buying spree that will make Japan in the 80s look like a trip to a c-store. They'll buy a lot of businesses, banks and real estate. They'll buy a lot of farmland and comercial ag operations. They'll buy ports, golf courses, amusement parks, banks, aerospace companies, auto makers -- you name it.

The results:

At one level, it may be good in some sectors. A cheap dollar will make US exports attractive. The bad news is that we will feel 70's style inflation. We will all have less buying power. I'd look for shakeouts in the restaurant sectors -- especially the casual dining (TGI Fridays, Ruby Tuesdays) sector. Retail will also shake out the weak hands and deadwood (Sears?).China will also try to take more of our industry offshore (after purchasing it). We will still make some vehicles in America, but I'd say the age of the Michigan auto industry is probably over after this next economic downturn.

[jumptheshadow]

54. Please ask your brother this

What will be the impact of a McCain presidency on the economy vis-a-vis an Obama or Clinton presidency?

[El Pinko]

56. I will, next time I talk to him.

He's a libertarian-type. Thinks POS Bush has been pretty bad, and liked Hillary early on, now favors Obama. He's in his mid-thirties.

[Arctic Dave]

60. If I have guess I would say 5 years.

Just because some of the problems will not be addressed until * is out of office. Then, like a big ship, it will take time to get things turned around. "IF" things go well, by the time the next term is over, we "COULD" be out of the woods and into better times if they make some fundemental changes. Just MHO.

[sarcasmo]

61. Your brother lives in Fantasy Land, that's just this Americans opinion.