The bear growls

Are we headed for an epic bear market?The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game.

When asked if we were in the third inning on this, insider Satyajit Das, author of a 4,200 page book on credit derivatives, just laughed, saying we’re still listening to the national anthem, the game hasn’t even started yet.

The real problem is the credit crisis, and a bear market will make credit even harder to get. This will affect people as well as businesses as the economy slows down, factories close, and banks blow up.

  • DJ

    I’m amazed that few people, left or right, seem to notice the market effects of record government borrowing. Basic principles of supply and demand suggest that when the government doubles its already-massive debt load in six years, that’s going to create a credit shortage in the broader market.

  • Then factor in the insane real estate backed derivatives being bought while margined 30-1 and you have a credit market in crisis.

  • Ricky

    Why is this story not getting more attention. It appears from your blog that “The Great Depression” is just around the corner (of course my grandfather said “There was nothing great about The Depression). I may be wrong, but isn’t the main problem not credit, but solvency?

  • Joe

    I agree with Ricky on this. Credit isn’t the problem. I know people that borrowed against their home 3 and 4 times. Every time the ‘value’ went up, they cashed it out thinking it would never end, appearently the banks thought it would never end also. The banks couldn’t get them the money fast enough. Now, they are in debt up to their eyeballs, their home is worth less than they owe, and the banks want their money. I don’t know what they will end up doing, but them and the bank are screwed cause the house ain’t worth what it’s on the books for…..

  • Add to that the emerging realization that it is not just the “sub-prime” less than middle-class up for major damage, but the solidly middle-class. See, for example, the summary of this report:

    We lack solvency, all the way through the system. No one has adequate net worth these days – my family sure doesn’t, after we’ve coughed up for 2 graduate degrees. We earn more than I ever imagined in my wildest young dreams, and yet making ends meet is a month to month struggle. Look at what Krugman has written on how flat real wages have been for decades. I read these things on-line, and all I can feel is this gut-wrenching sense of reality setting in. If my family is better off than most, and just hanging in there, how is everyone else in my neighborhood doing? I fear the pain is only beginning, for all of us.

    I wish my grandfathers were still alive, so I could tap into their wisdom having made it through the last “Great Depression”.

  • The only thing I don’t like about articles like this one is that it STARTS from the point of view that all people are screwed — especially the middle class. It is time for people, ESPECIALLY the middle class, to start learning some fiscal responsibility and, more to the point, real sense. There are very few things that one person can do to stop a depression. There are, however, many things an individual can do to stop the worst effects before they happen, like starting to make a personal investment in hard currency soon and often, like gold coin. Unlike our Federal Reserve notes, gold is a world standard that just doesn’t quit.. Same for platinum. With a simple bank exchange, one could cash in their little pirate booty for much more cash later than it would be if you started saving spare-change too late and keeping it in the dumping dollar.

    And then there’s maybe the idea that your child doesn’t necessarily neeeeeeeeed that third gaming console for Christmas, but could use a bicycle to get around the neighborhood with rather than driving everywhere. You’d be amazed how much money you really can save RIGHT NOW while you have the chance; you just have to get out of the mindset that got our country in this putrification of credit systems. This is just a meek example of how one can help minimize the effects of a depression BEFORE it starts. If enough people stopped behaving like Brat Princes – stop buying things on Credit that they could never afford to begin with, stop using consumerism as a pacification toy, only to whine about how they have no money afterwards – then we may be able to minimize the effects of the bear market somewhat.

    Buuuut, instead, most people will never stop eating McDonalds for a $.50 BigMac that’s priced 2x-3x higher for the consumer, will hear the talking heads tell them their worst nightmares are coming true, and will inevitably give up hope before the battles are actually lost! Find some fortitude, America, and learn to reconnect with your humility and sense of responsibility; while it is not -totally- our fault that the economy is going to fall on its arse, it IS our fault that we do nothing but whine about how the end is near. Stop placating to your fears and god forbid, tough it out now so it won’t be so bad later. I’m not insensitive to people’s plight, I feel the burn myself (faaaaaar from even well-off middle class) and feel for other people’s misfortunes very much; its just that there’s no time to sit around and cry about it, or EVERYONE will be in the same boat. Don’t be a lemming, change your course now!

  • Joe / Ricky

    Right now, the major concern is credit – everyone is jumpy and doesn’t want to lend, especially not to someone who might become insolvent. So the credit crisis does lead into the insolvency question. Most of the big investment banks have enormous amounts of this now worthless toxic sludge that will have to come on their books soon. But without free flowing credit, things just slow down and get frozen up.

    Bond reinsurers are also being examined. If their ratings gets downgraded, everything they insure does too. This would be catastrophic.

    Yes, people who used home equity as an ATM thinking prices would rise forever are screwed.


    Absolutely, we all need to do whatever we can, not get gloomy, batten down whatever financial hatches we have. So, I don’t think we’re all screwed, but that things are going to get bumpy, especially for those who didn’t see it coming.

  • Steve Harrington

    The dollar is overvalued, as are most corporate stocks. As long as the people in Asia are willing to work their butts off to make our consumer products and use the dollars they earn to buy dollar valued assets, we are living well. Once they figure out they have been duped and start dumping their dollars, we are in for a bit of an adventure.
    I don’t think Adam Smith or Karl Marx ever envisioned a type of capitalism that has uses its excess production for casino type speculation and never ending bubbles. At this point the economy is 20% financial services and only 13% manufacturing, so the cart is leading the horse.
    It will be interesting to see what happens.


  • DJ

    Something to keep in mind: during the Great Depression, about 60% of America was plunged into poverty or near-poverty. But 40% were affected either mildly or not at all. Whatever lies around the corner for us, the effects are likely to be the same: we’re not ALL screwed, but a lot of people will be.

    And Lonelyoakwitch is right: in many cases, people have done this to themselves through wishful thinking and lack of fiscal responsibility. My family is solvent– because we made a decision to be– and if things don’t get too bad, we’re likely to stay that way.

    Don’t get me wrong: I’d like to see people avoid financial disaster. But that takes changes in behavior. I’ve worked to teach others what I learned the hard way in the last real estate crash (1990-91). But too few are willing to make the effort to change– and now it may be too late. Hopefully, when the dust settles, we’ll have a nation that’s gained a new respect for financial responsibility.

  • > I don’t think Adam Smith or Karl Marx ever envisioned a type of capitalism that uses its excess production for casino type speculation and never ending bubbles.

    Well put.

    > I’d like to see people avoid financial disaster.

    One of my grandfathers was a banker and one of the very few who saw the Crash coming. He battened down every hatch he could, took some financial whacks when the Crash came, but basically survived intact.

    Of course, he had assets to lose, but what about those now living paycheck to paycheck working at a Wal-Mart, and they start laying off next year.

  • My father has been dead for almost fifty years. He predicted almost everthing that has happened. Of course he never envisioned ” sub-prime” or any of the hokus pokus terms that are going arround now such as derrivites and options but he knew about crooks and liars of which he was never one. He never had any idea how many there were. I did not either but if I had to make an estimate I would include most of the Repukelican party, the bankers, the Bilderburghers and everybody who voted for Bush, Cheny et al. I apoligise to my country for not having done everything in my limited power to prevent what has happened to this wonderful world. I am regretably, OLD PAUL

  • DJ

    “what about those now living paycheck to paycheck working at a Wal-Mart, and they start laying off next year.”

    Our household income is well below median (and it was when we lived in CA, too), yet we’ve made choices that allowed us to put money into savings and assets rather than credit card interest and consumables.

    There are very few Americans NOT living beyond their means. It’s become a cultural way of life. There are a very few for whom this is unavoidable– but most of us would be better off saving and investing for the future, or at least paying off debt, than buying new Nikes and X-boxes. (And for those who are stealing their new Nikes, they should catch a clue from our politicians and steal something of more lasting value.)

  • We’ve both been more fortunate than most. A low-income family with a couple of kids with mom and dad working multiple minimum wage jobs doesn’t really have much chance to get ahead and will be the first ones hurt.

    And yes, you’ve worked hard to get where you are. So have Sue and I. We’ll b able to handle a financial storm or two. Many won’t.

  • DJ

    Unfortunately, the low-income family (along with the rest of us) has been bombarded with the message that buying consumer goods on credit is patriotic. Can you imagine our grandparents buying an X-box for the kids rather than paying off a debt? I can’t. My grandmother, who remembered the Great Depression well, washed and reused her aluminum foil until the day she died.

  • Are you implying I don’t need a solar powered wi-fi enabled waffle iron that can take directions from my cell phone?

  • DJ

    Only if you charge it.

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