The Great Recession - post mortem

[Edward64]

Some news in the past week indicates some major players believe we are in a recession now.

The official definition (ex. 2 qtrs of negative growth) would seem to indicate we cannot be in an official recession now (ex. 4Q 2007 did not have negative growth, or at least not until it has been revised).

Other than for my 401K/IRA and gas prices, I don't personally feel the "recession" as my house value has not declined much if at all and think I am in pretty good shape with my employer (ex. won't be the first to be let go).

Wanted to setup a poll and see how you vote. Regardless of an official recession, do you think we are close to bottoming out and then rebounding, or do you think there will be worse to come.

[Noop]

How long does a recession last?

[JPhillips]

Just looking at projections for mortgage and other loan defaults says we're not close to the bottom.

[Grammaticus]

from economy.com

Recession Primer
Media reports and economics textbooks often define recession as two consecutive quarters of negative GDP growth. While this is the conventional wisdom, it is not quite accurate, at least in the U.S. In fact, the definition is more complex and subtle than that. The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) dates the peaks and troughs of the economy's growth; over the decades this activity has made it the de facto arbiter of recession.

The NBER panel defines recession as a "significant decline in economic activity spread across the economy, lasting more than a few months." A number of gauges are used, principally real GDP, income, employment, industrial production and sales, both wholesale and retail.

Unfortunately for forecasters and policymakers, the NBER's methods take time. Because the committee waits until the data are unambiguous, it often decides a recession has occurred months after it has started--and sometimes after it has ended.

(Importantly, the NBER only dates recessions for the U.S. as a whole—not for individual states or metropolitan areas. Moody's Economy.com fills that gap, estimating business-cycle peaks and troughs monthly for all 50 states and 381 metropolitan areas.)

[Galaril]

No disrespect but anyone inculding Bush who says we aren't in a recession or heading into one are fucking idiots. Believe me I felt it firsthand, being that I got laid off and it was because of the slow down in the economy effecting are clients budgets for 08.

[DaddyTorgo]

gonna get worse before it gets better. For sure

[DaddyTorgo]

Originally Posted by Galaril

No disrespect but anyone inculding Bush who says we aren't in a recession or heading into one are fucking idiots. Believe me I felt it firsthand, being that I got laid off and it was because of the slow down in the economy effecting are clients budgets for 08.

oh I think you should say it with disrespect intended. It's pretty much clear-as-day right now, regardless of what the NBER indicators say at the moment.

[Edward64]

Originally Posted by JPhillips

Just looking at projections for mortgage and other loan defaults says we're not close to the bottom.

I was hoping all of that was known and factored into our "efficent markets" and that the banks revealed all their losses.

[Edward64]

Originally Posted by Noop

How long does a recession last?

It varies according to the below. 1981 was <1 year.

http://www.economicshelp.org/blog/re...cessions-last/

[Noop]

Originally Posted by Edward64

It varies according to the below. 1981 was <1 year.

http://www.economicshelp.org/blog/re...cessions-last/

Thank You Sir.

[Edward64]

Spent sometime reading articles.

Here's a comparison to the 1990-91 recession

For the most part, the U.S. economy bounces back from hard times quickly. The downturn in the early 1990s is instructive. It had a similar starting point to the rocky period we're in. Then, as now, a financial shock related to the housing market caused problems. Then it was the collapse of the savings and loan industry.

Today it's the subprime crisis. The 1990-91 recession lasted eight months, and unemployment eventually peaked at 7.8% - not a staggering number but still more than 50% higher than the current rate. Home prices in the top 10 metropolitan areas fell 8.3% during the downturn and its aftermath. Today they're off 5% from their 2006 peak. Recovery in the 1990s was slow: It took until 1996 for housing to start rising again.

The stock market moved faster. It dropped 21% but bottomed out in three months. If we did enter a recession this past December, as many economists think, a replay of 1990-91 would mean further market declines now followed by a rebound later in the year. Not a terrible scenario. Unfortunately, it's not the only possibility.

http://money.cnn.com/2008/02/08/pf/r...ion=2008022709

For anyone interested, the article was more on survival strategies for a recession.

[Edward64]

Maybe a sign of it bottoming out sooner rather than later. Bear Stearns bites the dust.

Bear Stearns, facing collapse because of the mortgage crisis, agreed Sunday evening to be bought by JPMorgan Chase for a bargain-basement price of less than $250 million, the two companies announced.

Bear Stearns’s stock price of $30 on Friday represented a yawning 62 percent discount to the $80 book value that the firm has reported, reflecting the broad view among investors that the fallout from the credit crunch has permanently devastated Bear’s core mortgage operations. JPMorgan’s bid of $2 a share, however, represents a 97.5 percent discount.

JPMorgan appears to have concluded that the business of one of Wall Street’s oldest investment banks is worth far less than the value of the firm’s Midtown Manhattan skyscraper, which is probably worth at least $1 billion.

http://www.nytimes.com/2008/03/16/bu...l?ref=business

Not sure I understand how this can go through at such a steep discount. Reminds of of post USSR when the robber barons got some Soviet assets at a steal.

[Sidhe]

Dude, why would that be a sign of it bottoming out sooner, given that BS is being forced into sale to stave off a panic in the Asian markets?

[Edward64]

Originally Posted by Sidhe

Dude, why would that be a sign of it bottoming out sooner, given that BS is being forced into sale to stave off a panic in the Asian markets?

Under the assumption you agree the market is a 'leading indicator' of the economy ...

The uncertainty and volatility in the market is because it does not know of the full extent of the housing/subprime mess. This is the first (?) big bank to fail, more may come but until the shakeout occurs, I don't think the public/market will regain its footing.

When the market recovers stability and growth, the recession/downturn will also end. You can't have the latter without the former.

[Masked]

Originally Posted by Edward64

Maybe a sign of it bottoming out sooner rather than later. Bear Stearns bites the dust.


http://www.nytimes.com/2008/03/16/bu...l?ref=business

Not sure I understand how this can go through at such a steep discount. Reminds of of post USSR when the robber barons got some Soviet assets at a steal.

It will probably go through because $2/share is better than nothing. BS essentially can no longer operate. If BS becomes insolvent, then the shareholders would get nothing.

[kcchief19]

Originally Posted by Edward64

Not sure I understand how this can go through at such a steep discount. Reminds of of post USSR when the robber barons got some Soviet assets at a steal.

After closing at around $30 a share, BS was trading at $.09 in after hours trading since then. The $2 a share actually marks a significant premium, although the holders of the stock aren't getting a haircut, they're getting a completely shave.

You'll get the usual nonsense blaming subprime lending, but this collapse was due to complete systemic poor investments, decisions and actions throughout the company's entire portfolio and business model.

[Edward64]

Originally Posted by Masked

It will probably go through because $2/share is better than nothing. BS essentially can no longer operate. If BS becomes insolvent, then the shareholders would get nothing.

I get that but what I don't get is this.

I am sure there are other financial institutions (domestic and/or overseas) that would have paid more for the $1B NY building alone?

This looks as if the Government basically handed BS to JP without allowing a competitive bid. From a layman, it would have been better for the Government to take it over (ala S & L in the early 90s) and then sell it at a better price?

I wonder if this means BS stock price will go down to approx $2 Monday?

[cartman]

Originally Posted by Edward64

I get that but what I don't get is this.

I am sure there are other financial institutions (domestic and/or overseas) that would have paid more for the $1B NY building alone?

This looks as if the Government basically handed BS to JP without allowing a competitive bid. From a layman, it would have been better for the Government to take it over (ala S & L in the early 90s) and then sell it at a better price?

I wonder if this means BS stock price will go down to approx $2 Monday?

But by buying the company you are also acquiring the exposure to their overextended positions. Which I've heard figures of $250 to $400 billion bandied about for BS.

[digamma]

And yes, BSC will trade right around $2 (and in line with JPM's) until the deal closes.

[Chief Rum]

Originally Posted by Edward64

This looks as if the Government basically handed BS to JP without allowing a competitive bid.

Nothing has changed for JP since the 19th century.

[Edward64]

Originally Posted by cartman

But by buying the company you are also acquiring the exposure to their overextended positions. Which I've heard figures of $250 to $400 billion bandied about for BS.

Okay, I get this. The severe discount factors in the "risk" of $250-$400B which is something the government (or other banks) would not want to incur.

Deep down, I still think there were some nod-and-wink-wink between JP and the Government that were not offerred to other domestic or overseas institutions that may have been interested.

BTW. Wiki says the S&L bailout totalled $160B in 90s dollars.

http://en.wikipedia.org/wiki/Savings_and_Loan_crisis

[cartman]

The government hasn't had a chance to weigh in on this yet. The Fed has guaranteed to help cover some of the exposure, but that was before the talk of this buyout happened. The only people to agree on this so far are the boards of JP Morgan Chase and Bear Stearns.

[DaddyTorgo]

wow. That's crazy (Bear Stearns)

[Edward64]

Originally Posted by cartman

The government hasn't had a chance to weigh in on this yet. The Fed has guaranteed to help cover some of the exposure, but that was before the talk of this buyout happened. The only people to agree on this so far are the boards of JP Morgan Chase and Bear Stearns.

Per the NY article quoted above.

Over the weekend, Bear Stearns, with the Federal Reserve and Treasury Department patched in by conference call from Washington, held the equivalent of a speed-dating auction, with prospective bidders holed up in a half dozen conference rooms at its Madison Avenue headquarters.

While the talks were taking place, Bear Stearns was simultaneously preparing a bankruptcy filing in the event the deal had fallen through, underscoring the severity of the firm’s troubles.

While the firm toyed with suitors including the big private equity firms Kohlberg Kravis Roberts & Company, which had its roots at Bear Stearns, and J.C. Flowers & Company, the only meaningful bidder was JPMorgan, headed by Mr. Dimon, who slept less than four hours the entire weekend.

Interestingly I know the article has been updated with this. This passage was NOT there when I first referred to it. People working late at NY times.

[Flasch186]

watch CNBC this week and you could see Fireworks IMO

[Cringer]

I say it gets worse. I have been saying for a good year now that transportation costs are going to start jacking up prices eventually. Companys are going to be 1)paying higher transportation fees to move product or 2)paying a higher fuel surcharge to have their product moved. Basically the same thing, an increase in what is being paid.

The price of fuel keeps going up and up, and it really doesn't look like it will stop sometime soon. It is going to make it's impact felt with all this other stuff going on around it IMO. It is also going to force another round of small trucking companies to shut down just when the survivors may have been finding away to survive with the fuel prices.

Just my 2 cents.

[Edward64]

Originally Posted by Flasch186

watch CNBC this week and you could see Fireworks IMO

I read the other thread ... you said up +1000 pts?

[Logan]

My best friend's father was a long-time Lehman employee...he survived the first two big rounds of layoffs before falling on Wednesday. Thankfully, since he was pretty close to retirement, they did right by him, giving him enough severance that would allow for him to reach his retirement date so he'd get his full benefits.

I have two other good friends, one being my roommate, who just got massive promotions within Lehman. With the talk that they could be next to go bust, they're both literally shaking.

[Flasch186]

Originally Posted by Edward64

I read the other thread ... you said up +1000 pts?

well i said down 1000 is what I expect by the end of the week but becuase the stock market usually does the opposite of what I expect it will probably go up a ton. its the contra-flasch theorem.

[Edward64]

Originally Posted by Logan

My best friend's father was a long-time Lehman employee...he survived the first two big rounds of layoffs before falling on Wednesday. Thankfully, since he was pretty close to retirement, they did right by him, giving him enough severance that would allow for him to reach his retirement date so he'd get his full benefits.

I have two other good friends, one being my roommate, who just got massive promotions within Lehman. With the talk that they could be next to go bust, they're both literally shaking.

Sorry to hear about your friend's dad. Good to hear it worked out for him.

I have not heard anything about Lehman? If they work at the Lehman office in NY by Times Square, I remember walking by there after 9pm and there were a couple Lehman guy's waiting to get into Limos ... thought to myself, what a lifestyle.

Good luck to them, it looks as if the auto and financials industry are the 2 most precarious industries ... following textile which went south (ex. sucking sound) in the 90s.

[Edward64]

Originally Posted by Flasch186

well i said down 1000 is what I expect by the end of the week but becuase the stock market usually does the opposite of what I expect it will probably go up a ton. its the contra-flasch theorem.

Okay, lets do a post mortem next weekend. If this checks out we will have to start the "contra-flasch theorem" thread.

[Logan]

This should help them out "for now."

http://www.bloomberg.com/apps/news?p...v.k&refer=home

[cartman]

The news didn't seem to settle the Asian markets too much, as the Nikkei is down 3% at the start.

[Chief Rum]

Originally Posted by cartman

The news didn't seem to settle the Asian markets too much, as the Nikkei is down 3% at the start.

Isn't this their first real shot at reacting to Bear Stearns at all? (not counting after hours trading)

Markets that haven't opened since then will likely trend downward at the start. I will be more interested to see where they end up.

[cartman]

Originally Posted by Chief Rum

Isn't this their first real shot at reacting to Bear Stearns at all? (not counting after hours trading)

Markets that haven't opened since then will likely trend downward at the start. I will be more interested to see where they end up.

At the end of the morning trading session, the Nikkei ended up down 4.23%. The afternoon session starts up in an hour and a half.

[Edward64]

Originally Posted by cartman

At the end of the morning trading session, the Nikkei ended up down 4.23%. The afternoon session starts up in an hour and a half.

Can you send me your link where you can see international markets?

I see the reports via cnn but they don't seem to be realtime updates.

[JPhillips]

Bloomberg.com does international markets.

On Bear Sterns, I've read that the Fed took on 30 billion in "less liquid assets." Was that essentially a 30 billion handout or will it be paid back?

[cartman]

Originally Posted by Edward64

Can you send me your link where you can see international markets?

I see the reports via cnn but they don't seem to be realtime updates.

CNN was where I was getting them. You are correct that they aren't realtime updates, they are usually updated every 30 minutes or so. This is the link I was using:

http://money.cnn.com/data/world_markets/

And looking at the link, the Hang Seng is down 4.98%. All signs are pointing to a Black Monday.

[Flasch186]

Originally Posted by JPhillips

Bloomberg.com does international markets.

On Bear Sterns, I've read that the Fed took on 30 billion in "less liquid assets." Was that essentially a 30 billion handout or will it be paid back?

I believe it was a 30 billion dollar foreclosure

/rimshot

[DaddyTorgo]

it's gonna be an ugly Monday...

[Edward64]

I know its unfair, but the only thought I have tonight is

"damn Bernanke"

[sterlingice]

Is there some point where we can stop with the Saint Greenspanning and show that he set up a lot of what is coming to fruition right now? Or has that already started and I've just missed it?

SI

[kcchief19]

It will be interesting to see what happens this week. You have to expect some decline tomorrow, I'm betting in the 2-4% range. I would be surprised to see another selloff Tuesday after the Fed meeting if they drop rates as low as some rumors have been going around -- one rumor has a full point drop. If that's the case, it's going to panick investory even more since it will be a sign that the Fed thinks things are going to get worse and they won't have much more room to cut rates further.

But I wouldn't be surprised either to see a quick rebound later in the week. There are a some big earnings reports out this week that could impact the market. But if we see a 5% decline by close Tuesday, there will be some bargain shoppers jumping into the market later this week.

[kcchief19]

Originally Posted by sterlingice

Is there some point where we can stop with the Saint Greenspanning and show that he set up a lot of what is coming to fruition right now? Or has that already started and I've just missed it?

SI

I think it's a case of Greenspan getting way too much credit for the market when it was booming and way too much blame now. I really don't think there was anything Greenspan did that got this going.

The only complaint you could lodge against Greenspan is that he kept rates too low for too long. I don't necessarily agree with that.

From my experiences and observations, the problem has been that there has been too much investment money chasing loans. Banks were lending money across the board to people who shouldn't have been getting the loans because they had plenty of money. There was a reason BS was buying so much mortgage debt. There was a demand from investors. This applies to other types of lending as well. There were too many investors looking to buy debt.

I'm not sure economic policy would have addressed that. I do know there is a perception among some people even now that the Fed, the Administration and Congress have been slow to react to the problems in housing because they want money out of housing and bonds and into the stock market. Not sure I agree with that either, but I'm surrounded by people who believe that.

[Julio Riddols]

hxxp://www.gregpalast.com/elliot-spitzer-gets-nailed/

Thought this was interesting. Surreal, but somehow believable, and that amazes me.

[Edward64]

Originally Posted by sterlingice

Is there some point where we can stop with the Saint Greenspanning and show that he set up a lot of what is coming to fruition right now? Or has that already started and I've just missed it?

SI

I wasn't even thinking about Greenspan, my statement was directed towards Bernanke only.

Hindsight is 20-20 etc. and the final act has yet to play out but I strongly suspect that Bernanke will take a hit in the economic history books for not acting quickly or aggressively enough 3Q-4Q 2007 when the signs started.

[st.cronin]

I don't think Greenspan can possibly get enough blame. Having said that, I'm still essentially optimistic. The market is in a weird state right now, but I think in a year or less things will good again.

[cartman]

Oops, Cramer was wrong on this one last week.

http://www.wjno.com/cc-common/news/s...rticle=3413726

[SteveMax58]

Going to get worse before it gets better. I dont think enough emphasis can be placed on the consumer being more inclined to spend when their living arrangements feel secure.

The fact that we have a relatively large number of defaulted loans already means that (A) many who overbought, will be renting for a few years and (B) House values have and will continue to drop.

The problem with that is those who did not overbuy, and have & will continue to pay on their homes for the next few years means that by the time the first/second round of "defaultees" are ready to buy, they will be buying from the "responsible" parties that have just lost their a$$, just by paying on time. I would expect this to result in a third round of defaultees who will see this as unfair and not within their interests to continue to pay on a debt that many others have long since recovered from.

I dont think this means everybody...just a reasonably large precentage who bought at or near peak values...and subsequently cannot afford to sell without losing 20-30% at least. I think it would take quite a while for these people to just break even...barring some sort of legislation or assistance.

[SteveMax58]

Dola,

I cant blame the lending institutions enough for this mess. Investors are also culpable...but the lendors in many cases were not even thinking about keeping most of these ridiculous loans.

Just a mess all the way around...but somebody gave these loans out...and it wasnt Greenspan. I'd agree he could have "possibly" done some things to help lessen the mess, but I dont see him as the problem in it.