Economic Ghosts of the Past

In 1929 Black Thursday came, followed by Black Monday and Black Tuesday sending the seemingly stable high prices of the stock market into an equally deep pit.  Like the market crash of 1929 and the subsequent depression, today's troublesome market news was preceded by speculation and excess with a belief that high prices were going to remain stable.  That was not the case in 1929, nor is it the case in today's market.

Bubble blogs preached doom and gloom about the housing market two years ago.  Some scoffed at their negativity.  Fiscal conservatives, however, questioned the inflating prices of goods and services as well as homes.  At some point, economists warned, a ceiling would be reached and the market would reverse itself.  Reverse itself, it did, but with a far wider scope than many expected.

• GMAC Financial closed all 200 of its retail offices with 60% of the cuts all being in the Residential Capital division, 7th largest mortgage lender in the nation.  Total loss $1.86 billion.
• Two months ago Indy Mac, the 2nd largest mortgage lender in the nation, went belly up to the tune of $9 billion.
• The government bailed out Bear Sterns in its merger with JP Morgan Chase with a $29 billion loan.
• Last week the government placed Fannie Mae and Freddie Mac, who jointly held 50% of the nation's $12 trillion worth of mortgages, in conservatorship.   The two companies reported a combined loss last year of $14 billion.
• Retail sales dropped .3 percent in August surprising economists who predicted an increase in retail sales of .4 percent.  It seems the stimulus expected from the refund checks was short lived.
• This weekend Merrill Lynch, the largest brokerage house in the world, sold to Bank of America for roughly $29 per share, down from $50 a share in May, and $80 a share a year ago.
• Today the 158 year old investment house, Lehman Brothers, filed chapter 11 bankruptcy claiming $613 billion in debt due to 100,000 creditors.  It's anticipated most of its business units will be liquidated.

Is it any wonder the Dow Jones fell 300 points today?  And yet Greenspan stated yesterday that there is less than a 50% chance the nation will come through this without a recession?   It sure feels like economic ghosts of our nation's past are visiting again.

Comments

[Bret Chapman]

Post is good and informative.