You have a good point, we may need to start entertaining the idea that there is some real value that will be recovered later, possibly by new owners, maybe the taxpayer, maybe Bank of America (Countrywide & Merrill Lynch), JP Morgan Chase (Bear Stearns).
I think it is early to start looking for this, but events have moved very fast.
There has been the reduction of over 3 trillion in stock and bond market value worldwide.
The total value of bad mortgages maybe under 200 billion right now.
Here's one possible outcome -
In about a year or so, almost every recent US housing loan will be examined, and either refinanced, foreclosed, or sold to the Federal government. The FEDs get the bad ones.
This will leave most financial entities with assets whose quality is known much better than today, and they will have positive net worth. De leveraging will be postponned, and to some degree limited.
Financial stock prices will have recovered to about 75-85% of 2007 levels.
Housing prices will be about 10% below what they are today.
Oil prices will vary around $100.
The economy will start growing above 1% by the third quarter of 2009, and the fourth quarter will seem normal. The consumer will be back to a limited degree.
Forth quarter housing prices will move up about 2%, as inventories have been worked off, and more people are willing to buy.
We won't return to a boom, but to some stability and slow growth with more underlying inflation than we would like.
Sort of like 2007. |
