Plus ca change

Macro Man occasionally has a look into his crystal ball, gazing at what the world will look like in the future. When he had a look last night, he managed to dig up a market historian's succinct summary, written in the middle of the next decade, of the current subprime crisis:

The U.S. Subprime crisis of the 2000s was the failure of several financial institutions in the United States and elsewhere. More than 1,000 banks, mortgage lenders, hedge funds, and structured invest vehicles failed in what economist Nouriel Roubini called "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time." The ultimate cost of the crisis is estimated to have totaled around 2.75% of US GDP, about 80% of which was directly paid for by the U.S. government --that is, the U.S. taxpayer, which contributed to the large budget deficits of the late Noughties. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system's losses.

The concomitant slowdown in the finance industry and the real estate market was the primary cause of the 2007-08 economic recession. Between 2005 and 2008, the number of new -homes constructed dropped from 2.2 million to 1 million, the lowest rate since World War II.b

Seems like a pretty realistic summary, doesn't it? Now compare it with the Wikipedia entry on the S&L crisis of the 1980's:


The U.S. Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in what economist John Kenneth Galbraith called "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time." The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly
paid for by the U.S. government -- that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts-- which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system's losses.

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 million to 1 million, the lowest rate since World War II.

Plus ca change, plus c'est la meme chose...
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Anonymous
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April 16, 2008 at 4:32 PM ×

In that case, DOW 100k will be here sooner than we think! :)

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"Cassandra"
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April 16, 2008 at 6:24 PM ×

you missed the end of the Wikipedia entry:

"...The debacle was but another in a litany of massive policy blunders and strategic fiscal and international financial neglect of the Public Interest that became the hallmark of the Bush Administration, voted by historians as THE most hapless President and worst series of administrations in the history of The Republic..."

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