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When should you have known the economy was about to crater?

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  • When should you have known the economy was about to crater?

    Just read an article in the New Yorker about when Wall Street types knew the financial system was unsustainable (in hindsight!) and how few of them did anything about that realization.

    For me, it was four years ago when we hosted a bunch of my old high school buddies at my 1200 sq. ft,, 1953 stucco tract home and someone asked what places in the neighborhood were selling for, and the answer was about $1.3 million dollars! (Granted, our house has some nice updates and a great location, but we just knock on wood hoping that basic structure will outlive us!) We all laughed and everyone agreed that no one who could really afford to pay that price would ever want to live in such a crappy little place. Anyone with any common sense would have sold the next day - at the time listing only lasted a week or less in our area - taken the cash and rented until the market fell and bought back the same place for a half million bucks less. Of course we did no such thing.

  • #2
    Summer of 2005, I was golfing in my company's golf league. A guy on the other team lived in the same town that I do, so we were complaining about how high housing costs were. I knew that we were in a bubble and stated that housing would be less expensive five years from then. I did not realize that popping the housing bubble would take down the rest of the economy though.

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    • #3
      Has the economy tanked or is this just a buying opportunity?

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      • #4
        When did you figure out that it just no longer made sense that whatever you were invested in could sustain at a high level? And did act on that gut feeling?

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        • #5
          Originally posted by Jack Slocombe
          Has the economy tanked or is this just a buying opportunity?
          I think the economy has tanked. Things can get worse, and I fear they will. I'd love to be wrong.

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          • #6
            Less Bang for the Buck

            Rather than regretting the past, ask yourself today what all today's pump priming is going to do to the value of the US dollar and anything valued in dollars.

            Quick Silver
            Hong Kong

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            • #7
              ...when the shoe shine boy started giving me stock tips? :roll:

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              • #8
                Re: Less Bang for the Buck

                Originally posted by Quick Silver
                Rather than regretting the past, ask yourself today what all today's pump priming is going to do to the value of the US dollar and anything valued in dollars.
                I have been asking myself that question a lot lately, and I don't like the answer I'm coming up with.

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                • #9
                  What this and other economic hiccups have shown is that a large part of keeping the economy humming is confidence, nothing more, nothing less. From that you can deduce that it is all a con game, which may be the case.

                  The big con this time was allowing mortgage lenders to lend to borrowers who the lenders knew could not pay off the mortgage once the teaser rate was over. Yet there was no downside to the lender since the loan was immediately sold off to consolidators, while the lenders continued to initiate more of the same.

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                  • #10
                    Originally posted by bad hammy
                    What this and other economic hiccups have shown is that a large part of keeping the economy humming is confidence, nothing more, nothing less. From that you can deduce that it is all a con game, which may be the case.

                    The big con this time was allowing mortgage lenders to lend to borrowers who the lenders knew could not pay off the mortgage once the teaser rate was over. Yet there was no downside to the lender since the loan was immediately sold off to consolidators, while the lenders continued to initiate more of the same.
                    You hit the nail right on the head. When we get back to 20% down and lenders who benefit directly from the loan you will see prices stableize. All will be fine.

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                    • #11
                      No doubt you are right, Jack, but don't we first have to undo the entire financial system that has evolved over the past 20-30 years, and start all over again with a new investment banking structure? And doesn't someone, or a lot of someones, have to go bankrupt in that process?

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                      • #12
                        Although the financial system may have caused the mess, I don't think fixing the financial system alone is going to get us out of it. The cutback in spending by individuals has had spiraling effects on jobs and further spending cutbacks. I don't know that sounder lending policies and practices are going to cure this.

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                        • #13
                          when:

                          1) your neighbors daugther, who makes 60k per year as a switchboard attendant for ATT, purchased her brand new townhouse for 350K on the other side of the tracks in the neighborhood you wouldnt have walked your dog through at night 7 years ago.

                          2) When the president of the US told you 6 months before the crash that the financial industry has never been stronger.

                          3) When every time you spoke with a realtor friend they told you "there has never been a better time to buy" as he described the townhouses he was selling, see 1) above.

                          4) When the president of the US told you that the best way to fight terror was to go out and spend your money.

                          4) When the president of the US told you that if we didnt bail out the billionaires (rather than arrest them) we would be facing a depression sized catastrophe.

                          5) When every billionaire on wall street was stuffing his pockets with cash from the till rather than with options to buy stock in the companies they ran.
                          ... nothing really ever changes my friend, new lines for old, new lines for old.

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                          • #14
                            I had no real idea how out of line the financial community had gotten, but we had decided that with all the "funny" mortgages (nothing, or nearly nothing, down, interest only payments at teaser rates, etc) that the housing market was due for a crash. We figured that housing would rebound, but probably not fast enough for us. We were semi retired in 2006, and our house and yard were way too large for just the two of us. Four, if you count the dog and cat. But, the fuzzies don't get a vote. So, we put the place on the market in spring of '06. We had been communting to San Diego to attend our grandson's league and section meets, and Mary started looking at places here. Right after Easter, we put the place up. Sold in 13 days, at a bit above our asking price. We pretty much sold at the top up in the bay area, but bought at the top down here. We bought outright, so no mortage and we have a bit of a cushion for hard times. Our investments are pretty plain vanilla. I guess we could have been aggressive, but weren't. In CA, we are more worried about losing parks and libraries than our investments. Bad times will be around for a bit.

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                            • #15
                              Originally posted by paulthefan
                              when:

                              1) your neighbors daugther, who makes 60k per year as a switchboard attendant for ATT, purchased her brand new townhouse for 350K on the other side of the tracks in the neighborhood you wouldnt have walked your dog through at night 7 years ago.

                              2) When the president of the US told you 6 months before the crash that the financial industry has never been stronger.

                              3) When every time you spoke with a realtor friend they told you "there has never been a better time to buy" as he described the townhouses he was selling, see 1) above.

                              4) When the president of the US told you that the best way to fight terror was to go out and spend your money.

                              4) When the president of the US told you that if we didnt bail out the billionaires (rather than arrest them) we would be facing a depression sized catastrophe.

                              5) When every billionaire on wall street was stuffing his pockets with cash from the till rather than with options to buy stock in the companies they ran.
                              what about the presidents congress? Dont they appropriate the funds necessary for what you just mentioned?

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