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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (8736)	3/26/2008 11:33:51 AM
From: jim_p	Read Replies (2) \| Respond to of 50666

Whodathinkit??? Losses to exceed a trillion dollars. For those who receive the BCA, yesterday was one of their best reports (a little late) from a firm that has been very bullish on the markets up to now. It summarizes the past credit bubbles that took place in Finland (1991-1994), Japan (1991-2002), Norway (1987-1993), Sweden (1991) and the US S&L crisis (1986-1991) with today's bursting of our credit bubble. The results are pretty eye opening on what we might expect over the next 5-7 years. Here is a summary of some of the averages of some of the stats of the five past real estate/credit bubbles cycles: 1. Housing price declined 26% to 65% (were down only 10% today) 2. Equity prices dropped anywhere from 44%-81%. Financial stocks were hit even harder. 3. The impact on the economy was painful, often involving a lengthy and/or deep recession. GDP remained below its full-employment level for 8-9 years (i.e. a negative output gap). 4. The cleanup is typically costly for the taxpayer, ranging from 3% of GDP in the U.S. to 24% (and counting) in Japan (today were at 3% with only a fraction of the losses reported). This is not your typical business cycle where the fed lowers interest rates down to where real interest rates are negative and the economy recovers in the next 6-9 months. The financial institutions have only recognized about 1/4 of their expected losses and they don’t have the capital to expand credit and won’t for years to come. Mortgage backed securities are history and no one has even come up with a solution or a new method to create, package and distribute credit yet. The deleveraging process is going to be very painful and we are still very very early in the process. When it's over we will end up at the opposite end of the cycle where leverage is far below average. Every past over leverage cycle has ended with leverage far below average. The last time leverage got this high was back in the 1930's. The average time period to go from extreme over leverage to extreme under leverage is about 9-10 years. Still no increase in energy supplies despite record prices. Keep your eye on energy supplies, this is probably the most important indicator to what the future of the economy will look like. Without an increase in energy supplies and an end to the credit crunch there will be no recovery in the economy. JMHO, Jim