Well... thats... SLIGHTLY comforting...

The bad loans were made against tangible assets, houses, instead of the more intangible asset of stocks. Equity can dissipate in keystroke, but you can't just vaporize a house.

a house, like a stock, is only worth what someone else will pay for it.

[quote]but you can't just vaporize a house.[/quote]

is that a dare?

@putch: that's true, but the key word is tangible. A house has intrinsic value due to the land and materials. A stock does not necessarily have intrinsic value.

@putch: not really the same. the house will be worth something to someone, the stock may not ever be worth anything to anyone again.

@putch: That's not the point. In 1929, loans were made against the stocks of companies that went under, closed up shop, leaving the underlying stocks worth only the paper they are printed on forever.

Real Estate, on the other hand, is not going to go away forever. It may lose value, but it will never go to zero, unless it's vaporized.

There's one other thing that needs to be added into the equation, which makes a big difference between now and 1929. The farming industry is still going strong. In the US, some of the worst downturns and depressions were matched with droughts and severe agricultural conditions. 1929 had the Dust Bowl.

Ridiculous. That's nothing but more wishful thinking from the paper talking heads.

Lost value is lost value. Sure, house values won't reach zero (outside a few places like Detroit) but upside-down ownership is exactly like the margin buys that brought on 1929's crash. It's called leveraging, and that's what's causing all the troubles right now.

The housing Ponzi is over. Values in most markets are on their way (crashing) back to a realistic multiple of stagnated incomes. The wealth that was suggested has been spent; by homeowners, contractors, improvement stores, etc, all the way to Uncle Sam. Unless someone imports a bunch of wealthy house-loving space-aliens quickly, the inflated value is gone, and we're barely starting the recasts. (90% of which will fail, and a tiny percentage which will qualify for these election-year refinancing schemes.)

Don't like "vaporize?" How about "poof!", or "we're screwed."

hmmmm only 3 ways.

how *comforting*.

Geee, now I can sit easy - I mean - losing 50% of my retirement account really had me worrying - wait - shit - my account is still losing... Maybe you could just send me some of those frosted animal crackers to make me feel better.

I had issues with each of those points based on what I know about the topics. I may be incorrect:

"We have the FDIC. Depositors aren't going to lose a dime. Can't say the same for the shoeboxers, though." - That's fine and all, but what happens when the FDIC runs out of money? It doesn't have an unlimited supply right now, and the fact that its protection was just raised to $250,000 doesn't make it any easier for the organization to hang onto backup funds if a large number of large banks fail(and a large number of banks seem set to fail presently).

"The Fed is cutting interest rates now, not years down the road." - I'm not really sure how that's going to alleviate any of the problems with the economy. The last time the interest rate was reduced in this country we got the housing bubble. During Japan's economic woes of the mid-90s the interest rates were slashed to 0(or near-0) and housing and and stock prices still fell for over ten years straight.

"The bad loans were made against tangible assets, houses, instead of the more intangible asset of stocks. Equity can dissipate in keystroke, but you can't just vaporize a house." - I understand that stocks weren't worth more than bits of paper, but a crumbling and abandoned house in an abandoned subdivision in the remote outskirts of a city doesn't seem like that much more useful an asset to hold onto. And the government is going to end up spending taxpayer money to own quite a few of those due to this $700b deal that just passed.

@Paper: The FDIC pretty much does have an unlimited supply of money. In the short term, they have a line of credit from the U.S. Treasury. In the longer term, they can raise the insurance premiums they charge to banks.

#4: You couldn't get on the internet and bitch about what an evil, old coot Mr. Potter was in 1929.

We also don't have ANY of the industry that helped pull us out of the Great Depression!

@SpdRacer: Maybe we can line up another World War. It worked last time...

#4 - In 1929, there was nothing like the pervasive, 24-hour news media which in 2008 produces a torrent of sensationalist fear-mongering dressed up as journalism to bolster its viewership. William Randolph Hearst would be doing cartwheels if he could see how the modern media environment has achieved such a grip over its consumers, to the point that the invocation of the Great Depression is accepted as part of the conventional wisdom that somehow must be disproved.

"As Dire as the Times May Seem, History Isn't About to Repeat Itself"

...it will find NEW and BETTER ways to screw us all over!

#1 The FDIC can only cover about 1% of all those insured.
#2 Make anymore cuts we'll be paying $10 for a loaf of bread.
#3 Yes, yes I CAN vaporize a house.

@putch: Also, a house has intrinsic value in that it is a HOME. People have to live somewhere. The value can almost never drop to $0. Land is also a finite commodity. No matter how low, it will eventually come back in value.

Yeah, nobody is going to "lose" a dime, but that dime that they still have may become so worthless that they wish they didn't have it.

4. In 2008, we have the ability to draw all sorts of parallels to 1929, something that we didn't have in 1929.

@krispykrink: Considering trillions of dollars just disappeared into thin air in the last few months, is money oversupply and inflation really a concern at the moment?

@catskyfire: Throw in a little climate change, add some bee colony collapse, stir it all up with a hurracane or two and your probably pretty close to what the dust bowl was.

And: the 30s Republicans didn't try tarring FDR as a "terrorist"

One large difference btn now and then is that in the late 20s, we didn't have a towering deficit, to say nothing of being engaged in a protracted, , nonsensical, quagmire of a war not congruent to our national interest draining further gold from our treasury. Because those Republicans at least had the self-respect to walk the walk that their talk laid out.

Whoever slips into the White House next year, they'll be in a less advantageous situation to affect events that matter because of the eight-odd years of rampant irresponsibility we've gone through.

We also have internet porn to cheer you up after a long day of losing your arse in the stock market. Back in '29 they had to go pay for a peep the ole' fashioned way...

@dry-roasted-peanuts:

Thanks for the laugh--needed it today!

@catskyfire: Although, today agriculture is around 3% of our GDP. Back in the Grapes of Wrath days, I'd think it was 10 or 15 times that. And today, it's concentrated among a remarkably few, remarkably large agri-business concerns. It's less The Waltons and more ADM these days.
"The Family Farm" of bygone days, with their hundreds of thousands of families, is largely dead, only resurrected for photo-ops when there's another farm subsidy bill that needs to be voted on.
So, it's of less impact, I think.

Correct me if I'm wrong, but in 1929 the average middle-class American didn't have nearly as much money tied up in the stock market as he/she does today. So, that's one thing that's worse... right?

@Trai_Dep:

Actually, many Republicans painted FDR as a "socialist" the 1920's term for Terroist.

In addition...

Roosevelt faced a Republican party that sought to convince voters that the Democrats had both brought about the Great Depression and failed to prepare the country for World War II. But the Republican campaign accusations did not stop there. The party, whose leaders had opposed the policies that became the New Deal and fought the extension of the peace time drafts of 1940 and 1941, also accused Roosevelt, who in the summer of 1944 made a long tour of American bases in the Pacific, of leaving his beloved Scottie Fala behind in the Aleutian Islands, then at government expense sending a destroyer to retrieve him.

So, as far as politics go, no big changes there :)

There's also the difference that we have the baby boomer generation that is just coming into retirement age. They had planned on selling there stocks and houses to fund their retirements. Boomers that are retiring in the next 5 years will be selling into a falling market and boomers that are 10 years out might panic and start selling as well. How the boomers respond to this downturn could cause a self feeding death spiral for the economy. And don't forget, the entire Social Security trust fund has been loaned to the government. Once the break even point has been reached, the federal government will be forced to pay back Social Security, this is currently projected to take place in 2018. Does anyone really think the government is going to be running surpluses in just 10 years. I think that we're in some pretty deep doo doo.

@schiff: I'm sorry, but the frosted animal crackers are no longer with us.

@Paper:

The FDIC works like any insurance policy. Institutions pay an amount per $100 of deposits to the FDIC and in turn the FDIC insures the deposits.

Private insurance companies also experience the same risks as the FDIC on insuring your house, car, health, etc. They do not have the money to pay out all potential claims that could arise on policies. You often only see insurance companies running out of money for claim payment during major disasters (see: Hurricanes, notably Andrew), but it still happens. AIG, Lehman, etc essentially provided a type of insurance on these subprime securities, which was a major component on their subsequent collapse.

The fact of the matter is that there are plenty of well capitalized financial institutions that are not exposed to these subprime mortgages. The risk is remote right now that there would be a major run on banks that would put the FDIC in a disastrous situation.

@Trai_Dep:
Have you been to the midwest in the last 20 years? There are still plenty of family farms in this country. And in case you were wondering, there was too much rain this year and it definitely affected the corn crop.

We won't have President Hoover for 3 years to do nothing. Even worthless Bush is doing more than Hoover ever conceived doing.

@Lo-Pan: But the intrinsic value of the house is FAR less than current home prices. Yes, a house is a tangible asset that is probably always going to be worth something. But that's small comfort if your house loses the 90% of its "value" that is based on demand for land, etc.

Also, a portion of the price of a share of stock is usually a tangible asset, too. Corporations own tangible things like buildings, equipment, vehicles, and bank accounts. I would argue that a stock represents at least as much intrinsic value as most homes.

@krispykrink: I'd like to see a reliable source about where you got that #1 bull from.

@Orv: Shh... don't give our president any ideas!

@Landru: With respect...not quite. The dust bowl ran from Texas up past Nebraska, and lasted a lot of years. Hurricanes, while nasty, affect coastal regions more. (And while there is some farming in those areas, there is also a lot more shipping and 'ooh, I've got a home near the sea'). Not quite the 4+ state agricultural destruction of the dust bowl.

The existence of the article suggests that history might repeat itself. Otherwise, why try to convince people so hard?

Maybe you can't vaporize a house... but there are quite a few empty ones around my neighborhood that no one seems to have the capital in order to buy. Hmmm... I wonder how valuable they'll be after a couple years of no one looking after them.

...waits to hunt deer on the highways...

@xtc46: \
Hee Hee reading that and your statement makes me think of how George Bush is portrayed on Robot Chicken.

"Captain Texas has been challenged, use these houses as target practice... Captain Texas style! Take that banks *nuclear blast wipes out homes*"

"Hee Hee Tacos Rule"

@Orv: Those dollars never existed in the first place; they were hypothetical assets based on obligations that could not be fulfilled. Thus, no money disappeared, it was only revealed not to exist.

"Equity can dissipate in keystroke, but you can't just vaporize a house."

I'm workin' on it, sheesh. These things take time.

There's many other things. The dollar has strengthened in the last 2 weeks. In 1929, the default rate on a loan was over 50% -- 50% of loans were defaulted on. COmpared to 2.47% in 2008, though that number will probably hit 3% or 4% as everything is tallied, but that's a HUGE difference.

Also, this post correctly pointed to the stock market, and a few people have said (or at least 1), that in 1929, the average American did not have as much in the stock market as today. While it's difficult to separate the two at times, this is not a crisis in the stock markets -- it is a crisis in credit markets, which is partially why these bailouts have not helped the DOW as much, because the DOW is a stock market. Of course, the two are linked as stocks relied so heavily on real estate, but as credit is shored up, the threat to the stock markets is not as great -- not nearly as great as 1929.

Plus, and most importantly, people have much more wealth today than they did in 1929 and jobs are not as fragile a thing as they were three-quarters of a century ago. ~95% of Americans are working, and while everybody will complain about pay or consistency or raising unemployment, that's a hugely significant difference from 1929 and throughout the 1930s. Nobody is dumping wheel-barrows of marks into the furnace, there is no "hyper-inflation" in any Western country, the government is more active and organized (And far more powerful).

These are extraordinary times and 1929 to 1941 were extraordinary times, but let's not think of them as being roughly the same simply because they're both extraordinary.

@DarkKnightShyamalan:
Nah.. In 1929 the normal people got hit by the bank closures. So even if they didn't gamble in stocks at all they still lost everything. If it wasn't for the FDIC no one would be using banks.

In 1929, there was no Jesus Phone. Heaven and Earth are now one.

@legwork: The inflated value of those properties is gone for now, but will return. There will be another housing boom, and then whoever owns those houses will do all right, if they can ride out the interim. On the other hand, the stock of a bankrupt company will never be worth anything again.

@Orv: And in any case, the federal government would not let the FDIC fail-- it would be political suicide. Money will be found so long as the U.S. itself isn't bankrupt.

@johnva: When the company that the stock represents goes bankrupt, then there simply is no shareholder value left, intrinsic or otherwise. This is codified in bankruptcy law, it's not a matter of opinion.

But in a real estate situation, even if the owner declares bankruptcy, the real estate behind their mortgage is still worth something.

@johnarlington: The boomers will hate me, but the current bear market will actually help this somewhat. Only five years ago, the bears were predicting that we would suffer decades of a bear market as boomers slowly withdrew every dollar they ever invested over their entire retirement years.

If those boomers listened to Jim Cramer, they all pulled out this week - there's nowhere to go but up! ;-)