Over one year ago, on August 16, 2007, I wrote this...
As I type this the Dow is down another 175 points. Since July 19th when the Dow Index hit 14,121, it has fallen over 1300 points or approximately 9%.
And I also included this brief explanation of what had been happening on Casino Wall Street....
Second example: today any wealthy individual can take $1 million and go to a prime broker and leverage this amount three times; then the resulting $4 million ($1 equity and $3 debt) can be invested in a fund of funds that will in turn leverage these $4 millions three or four times and invest them in a hedge fund; then the hedge fund will take these funds and leverage them three or four times and buy some very junior tranche of a CDO that is itself levered nine or ten times. At the end of this credit chain, the initial $1 million of equity becomes a $100 million investment out of which $99 million is debt (leverage) and only $1 million is equity. So we got an overall leverage ratio of 100 to 1. Then, even a small 1% fall in the price of the final investment (CDO) wipes out the initial capital and creates a chain of margin calls that unravel this debt house of cards. This unraveling of a Minskian Ponzi credit scheme is exactly what is happening right now in financial markets. LinkLink
On August 28, 2007 the DOW dropped 280 points finishing at 13,042.
I wrote this....
In the last number of years all I've heard from those very wise and serious economists and experts was how the refinancing boom was promoting consumer spending. And all that glorious consumer spending was driving our even more glorious economy and everything was oh-so-very-glorious.
Now it appears that all that glorious sh*t has hit the glorious fan and there will be serious repercussions for millions, if not all, Americans over the next couple years. The Reverend doesn't believe all these repercussions will be glorious in the slightest.
I mention this because there was steady selling today. I think we're through the frantic swings and are headed down in a slow methodical way. Could be wrong. Been wrong before. Link
But I wasn't wrong.
As I compile this post the DOW is down over 600 points to 9715. The Nasdaq is down 140 to....1805.
I'm but a lowly, unserious, un-expert, blogger. Not to be confused with those serious, lofty, experienced financiers who daily stride the economic earth spouting forth divine economic wisdom.
However, this lowly, nobody blogger is guessing that 401K statements this month are going to piss a whole bunch of regular working people, you know, "white people"(ala Chris Matthews)....off.
Townships, counties, cities and states will see their "investment" project funds wither away. Pension funds, the few that still remain, will consider folding. The unemployment rate, already over 6% (7.4% in Ohio) will move steadily up.......I'm predicting 9-10% before it's over. House prices will continue to decline. Equity lines will be called in because of inadequate collateral. Many small businesses will go under, simply because the demand for their unnecessary and non-vital product and/or service will dry up. Americans, already buried in credit card and reckless consumer debt, will file for bankruptcy at record levels, only to find out that bankruptcy is only available to the poorest and the richest...but not the in-between.
All of this....and this is the point.....happened under Republican rule. For 28 years, 20 of which found a Republican president in office, deregulation and freeing-up of the market was king. Voluntary accountability ruled and no expert wanted to interrupt the gorging at the trough by suggesting that it just couldn't all work out in the end.
Now we're at the end.
It didn't work out.
Now, all of us non-experts.....some 300,000,000 of us....will have to suffer.
Update: Here's a hint from McCain's campaign today on what I mean by suffering....
"John McCain would pay for his health plan with major reductions to Medicare and Medicaid, a top aide said, in a move that independent analysts estimate could result in cuts of $1.3 trillion over 10 years to the government programs." Link
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