foreclosure

California foreclosures rose 92% in March. Analysts were quick to blame government programs that postponed foreclosures for the sudden rise. Nobody said a word about the newer, more ominous mortgages going past their five-year fixed rate period, although there is little doubt that herein lies the true cause.

Expect more trouble to come. Sure, consumers are spending again. But if you think that will lift the economy, hold on. Without jobs and with more foreclosures to come, it is hard to see how spending can be sustained. Sure, people are spending, but you need to ask yourself why?

They are spending because they have money and they have been sitting on it for a long time, holding their breath. Now it is time to let go. This letting-go is likely to last a bit longer as everyone is eagerly awaiting the recovery and making -wishful thinking- statements about it. There is little doubt we will see a bounce and that bounce may well last into summer.

With the advent of spring, reproductive juices are flowing and that always leads to more optimism, more joy, and more spending. When spring gives way to summer and no jobs appear reality will surely intervene sooner rather than later.

the recovery that isn't

Wall Street got ahead of itself on Friday. Thinking -wishing that is, the most common form of Wall Street "thinking"- that the recovery was at hand, the Dow moved into positive territory for the year. Unfortunately, today's news added a serious dose of reality, showing that not only is the recovery not there, we are most likely nowhere near the bottom yet.

The housing crisis that started it all is far from over. More foreclosures are waiting in the wings. A large number of these are part of the original problem, i.e. homeowners borrowing more than they could afford to pay for houses that sold for more than they were worth. Has anyone forgotten the 5 year rule? The 2004, 2005, and 2006 mortgages are just now starting to reach the end of their 5 year grace period. Then they will reset by 10X or more! How's that for a nasty surprise?

These mortgages were written near the top of the bubble, when home prices were highest and values most out of whack. Furthermore, they were the most "creative" ideas originating from the enormous pool of "talent" that Wall Street accumulated. That means they are by far the most problematic ones. These are the ones people will walk away from.

In the meantime the high rate of unemployment is adding substantial numbers of additional foreclosures, which will lead to a further crash in home prices.

I predict home values will decline another 25-35% before it is all over. "Fake" unemployment (the number the US government uses that does not include everyone who stopped looking for a job, who is working part time, etc. ) will rise well above 12%, with real unemployment closer to 20%. The dollar will continue to slide and we will start seeing obvious signs of deflation.

Deflation is already happening, and if you are paying full price for anything these days, you are paying too much. But so far deflation has been largely hidden or it was covered up by "sales" and "deals." Pretty soon that will go away too and people will see prices drop everywhere.

I stick to my recommendation, buy gold. Real gold that is. You may need it some day in the not too distant future.

swine flu

I am sure that by now you heard about the Swine Flu that is raging in Mexico. I am not sure if raging is the right word since a mere 150 dead in a country like Mexico is barely above the noise. Not that I want to be callous about the loss of life, but, as some people have pointed out, this may be much ado about nothing.

It is interesting to note that this swine flu has already killed almost as many people as the much talked about bird flu of 2006/7/8. That flu did kill an enormous number of birds, but somehow the human toll never materialized. What also did not materialize was the much feared human to human transmission. This time it is different, since it is clear to all that the swine flu does transmit from human to human.

It does not transmit through eating pork and all the worries (and falling stock prices) about that sector are based on a misunderstanding of the disease. Maybe people are confused because in the earlier (bird) flu, contact with birds was strongly discouraged. But then again, not all diseases are identical. Maybe the public can be forgiven for not understanding these "subtleties."

Another reason why the swine flu has caught headlines (apart from the bird flu hangover, and the human to human transmission) is that we all know a pandemic flu is coming. Although we don't know where and when, we can be pretty sure -given the life cycle of flu pandemics- that we are in for a big one. A big one means one that kills tens of millions worldwide. Much like the big earthquake we are all waiting for in here in California, a major flu pandemic is a certainty.

Unlike what most people seem to believe, flu is a very deadly disease. It is not because we all suffer several bouts of flu during our life times, and recover swiftly and pretty much without sequelae in about 1-2 weeks, that we should think of flu as an innocent disease. It is up there with all the major killers that get a lot more coverage in the press.

Furthermore, a pandemic flu, like the one in 1918, is quite a bit more virulent than a "regular" flu. There are many reports of perfectly healthy young people who died within hours of developing symptoms. Some that survived the initial attack died several days later. Granted a large number of those died of bacterial superinfections -and we now have some remedies for those- but it would be ill-advised to be too cavalier about that. It may very well be that such a virulent flu followed by a bacterial lung infection is refractory to antibiotics (even if the bugs are not resistant). That is true because there is a difference between killing the micro-organism and ending the disease process. That too is something the public does not understand very well.

some basic facts

For those of you who think the crisis is over here are some basic facts. Basic facts that make it highly likely that this crisis will not resolve itself quickly. Facts that are not a matter of opinion or partisan politics.

And just for the record, these facts clearly demonstrate that our current economy is not sustainable in the long run. So, whether you are a fan of American style capitalism or not, it will have to change. Maybe not now, or maybe not yet, but eventually it will.

1. 2/3 of our present economy depends on consumer spending.

2. more than half of the American households have zero net worth.

3. true unemployment (not just the people standing in line for benefits) is close to 15% and rising.

4. half of the aging population do not have enough money to make it through their retirement years.

5. more than three quarters of the country is in a state of denial or ignorance.

Now you tell me how this crisis will end.

Or you can just stick your head in the sand and make optimistic statements based on wishful thinking.

What we need is a complete overhaul of our economic system. Nothing short of that will do.

afraid to face the music

I heard another economist talk on KQED last night. This one was from Harvard -I forget his name, not that it really matters in the scheme of things. 

Once again the story was the same: the administration is not doing enough to mitigate the crisis. It is afraid to "grab the bull by the horns." The monster bailout is too little, too late. And then there was more talk about "toxic assets" and possible bank failures. It appears nobody wants to admit these toxic assets are not toxic as in, "of questionable value," they are simply worthless. Totally and completely worthless. There are no "toxic" assets because there are no assets to begin with.

Anyone who talks about selling toxic assets or setting up a clearinghouse to sell toxic assets is yet another scam artist trying to fool the public into buying worthless paper. No wonder savvy investors are not interested in the Geitner plan. They've learned their lessons.

Unless and until we face these facts, the crisis will not get resolved. Not only that, the longer we wait, the more serious the problem will become and the more damage will ensue. It is one pill the Obama administration does not want to swallow. It is one danger they are not prepared to tackle. 

The reality is that all of the nation's major banks are de facto bankrupt and will have to go through bankruptcy procedures of some sort to be salvaged. Since everyone seems to agree that we need those banks, we cannot simply let them go out of business. That would be an even greater disaster and might cause a profound lack of trust in our currency. If that happens all bets are off. That is why I think you should own real gold. Real, as in tangible metal.

Even though Obama does not want to admit to it, the solution is simple: the US has to nationalize its major banks. At the very least it has to nationalize these banks for some short period of time. In essence much of it has already happened. We the tax payers are keeping these businesses alive. We are the de facto owners.

What is truly shameful however, is that the government did not want to get legal ownership in return for its cash. It did not want to become a shareholder with shareholder rights in return for the money it donated. Therefore its bailout money is nothing more than a donation to the rich. No wonder people are getting upset!

And why did that happen, you may ask? Because the folks in Washington are simply too chicken or too stubborn to admit that the great capitalist Reaganomics system has failed. That there is no other way out than to nationalize the financial system in order to avoid total disaster.

If stubbornness is the cause then we are seeing something that is eerily reminiscent of the previous administration's stubbornness to admitting failure in Iraq. If that is true, then change was just another empty campaign promise. If stubbornness is not to blame then there is only one alternative: weakness. I am not sure which is preferable.

dow 6000

My prediction of six months ago just came through. But if you insist and stick to closing numbers only, I should say it is about to come through, a few hours from now. The Dow Jones is below 7,000 for the first time since late 1997. I believe it has a ways to go. I have said it many times, I am a dyed-in-the-wool optimist and 6,000 was too optimistic. 5,000 anyone?

Did you also notice that AIG has just reported the biggest quarterly corporate loss in American history? And that GM is among the walking dead? Or that California unemployment is in the double-digit range now? It is scary to see how quickly all these predictions are coming through. Given how early -yes, you read that right, early- we are in this crisis, that should just scare the hell out of us.

It seems unlikely that we will come out of this crisis in less than 10 years. That is my optimistic scenario. The damage will be widespread and it will be very serious. Better hold on to your seats.

Best is to buy gold. Never mind that the price will fluctuate. A few years from now it won't seem all that important anymore.

ponzi in the open

I have to say, the P-word is becoming quite popular. First regulators uncovered "super-genius" investor and all time star Madoff, who practiced the "pure" form of this art. That was followed by a long series of articles, some of which went to great lengths to explain to people what Ponzi schemes are and how they work.

Then today, Nobel Laureate Krugman went a step further and called our beloved financial system a Ponzi scheme. He went about it in a very systematic way and pointed out why this is so. He then highlighted how Mr. Madoff fit into this picture. He showed how others did exactly what Madoff had done but with a few extra steps. It can't get any more basic than this. 

And there you have it folks, from a true expert, something I have been saying all along: our Western financial system is a Ponzi scheme.

Guess what, we just authorized our government to pump $700 billion into that system to make sure it survives. Because, as W would say, it is fundamentally a "good" system and we want to keep it around. There were just a few rotten apples and we should not throw out the baby with the bath water, as the old cliche goes.

Unfortunately, reality is a bit different. The system apparently is rotten to the core and maybe there are a few unspoiled apples, and perhaps many apples that look OK but are really rotten inside, who knows?

The more we find out the more America in the 21st Century starts looking like Rome in the 3rd century. And we all known what happened there next.

the crisis explained-without equations or buzz words

The current economic crisis is easy enough to understand. There is no need for fancy (or at least fancy-looking) equations or buzz words such as "the liquidity trap." It is quite simple and also easy to see why it has not hit bottom yet and will continue for a long time to come.

It all started with housing. The bubble burst. Too many people had bought houses they could not afford, or houses they never intended to live in but were going to "flip" for a quick profit, or extra houses they did not need. More people had refinanced their existing homes to cash out equity and spend it on frivolous things that they did not need.

The whole financial system went along with this, happily making money. As time went on, the finance guys got bolder and bolder, inventing ever more creative ways to get commissions and reap benefits. They lured developers, builders, appraisers, land speculators and others into their game. Everyone was getting drunk with success, and the more drunk they got, the more risky and borderline their moves became. Quite a few stepped over the line too.

The financiers also snared local and foreign investors with complex financial arrangements. Soon enough the insurers found ways to participate as well.

Each step along the way, everyone added some leverage. More and more hot air entered the bubble. Eventually it burst. It burst with a loud pop, but because it was so large and convoluted and had some many compartments, it is still popping left and right and leaking excess as we speak. In fact there are many parts of it that are still hyperinflated and have not felt the inevitable pop yet.

Now we have many folks who lost their homes. A significant number of them counted on their home, not just to live in, but to fund their retirement and their children's education. On top of it all, many of these people also lost what meager savings they had in their retirement accounts.

Huge numbers are "underwater" with their mortgages. They owe more than their house is worth. Even if they stay put, they perceive a huge loss and many of them too counted on their home to pay for future expenses.

Everybody lost big in their retirement savings. With so many baby boomers close to retirement and therefore unable to recover easily, the trouble and the fear are widespread. 

With the loss of retirement people think they will need to work longer. But jobs are disappearing too. Even those with jobs today, face uncertainty. Those who lost their job are close to despair. Nearly everyone is without savings to fall back on so the fear of joblessness is truly paralyzing for many.

Meanwhile credit has dried up. Faced with huge losses, complicated financial instruments that are incomprehensible and likely worthless, widespread fraud, and a poor economy, nobody is willing to lend money anymore. All cash influxes are immediately earmarked to fill the black hole of losses or perceived losses and no amount of cash influx increases the appetite to lend or to spend. All the money the government doles out disappears in a black hole.

Consumers refrain from replacing items that work. They postpone expenditures, they forgo luxuries or anything that is not necessary. They cancel trips and vacations. Many make deep cuts that may even include seeking medical help. They are in survival mode. All cash provided to them is immediately sucked into their own personal black hole.

Meanwhile there is excess inventory. There are too many houses and more appear every day. Prices crater, causing more problems for those with mortgages trying to survive. There are no buyers. Nobody is in the mood to think long term. Few have money to spend, some want to wait because they think prices will fall further and a lot are cut out because there is no credit even for those with good scores.

There is also excess inventory in other goods, including non-durables. All these were produced and are produced based on projections that are now far too optimistic. Inventories grow and companies slash prices and start layoffs. That further reduces the buyer pool and leads to expectations of more price drops.

Consumers are no longer interested in discretionary spending. They are no longer into bargains. They are in survival mode. Other things are no longer in their minds. They are deaf to the siren call of advertisers. They are saving and looking to save more.

New investment is halted because nobody wants to consider it. There are no buyers, and even the dreamers have ceased to dream. Nobody wants to focus on the long haul when they fear near term disaster. People dying of thirst in the desert are immune to 80% discounts on clothing.

Additionally, bad memories linger much longer than good ones. So expect people to take a very long time to change their habits -even if they could, but most can't anyhow.

Welcome to the depression of 2008. I'll be surprised if it clears before 2015. As you can see, I am an optimist. It took over 10 years and a world war to resolve the 1930's depression. 

ticking time bombs

You may wonder why do people not spend? Why are American consumers capitulating? 

Let me first say that this may be bad news in the short to medium term, especially given the fact that our economy depends on consumer spending, but in the long run this is exactly what we need: less spending, less consumption, more savings.

Right now though, it is painful, and believe me, it will get much more painful soon enough.

The word on the street is that the American consumer has stopped spending because of the uncertain economic outlook and the uncertain labor market.  But we have been through recessions before and we have dealt with job losses and high unemployment before. But that did not stop consumers from spending. In some instances, we appear -appear is the right word- to have spent our way out of a recession. So what is different now?

What is happening is that there are a whole group of people who seem to be doing fine and who are making payments on their loans, but who can see foreclosure coming. Like deer in the headlights of an oncoming truck, these consumers are paralyzed. And as surely as the deer, they are about to get run over. The only difference is that they are not only paralyzed, they can't move even if they wanted to. They are sitting on a ticking time bomb.

We are talking about the households with interest-only, and pay-as-you-go ARMs. The folks whose mortgages are negatively amortized. The people who are in for a whopping reset. A reset that will start happening soon.

The vast majority of these folks live in Arizona, California, Florida, Nevada, and other states already hard hit by the current crisis. So far, they are still making payments because their loans haven't reset yet. They are the invisible problem. As time goes by, they are also increasingly underwater, meaning they owe more than their house is worth. 

There are two forces at work here. As prices drop, more of them go under, and as time goes by their principal grows -because they pay less than is needed. These folks are terrified and they stopped buying. They are hoping for a bail-out. They are holding on for as long as they can. They are selling assets to survive. They are further depressing prices.

We are entering a vicious circle. Actually we are already in, but there is still time for a fix. That time however is running out. Another time-bomb is waiting in the wings. It is called the Christmas shopping season. It is what retailers depend on for 25%-50% of their annual income. It promises to be a major disaster. Given how many people's livelihoods depend on retail that means a big jump in unemployment around New Year. More unpaid mortgages will result. Even people who have fixed rate loans and are able to make payments and who have good credit will now be affected.

The result is a third time-bomb to start ticking. It is the investor time bomb. At some point investors will capitulate too. They will panic, or they will need the money in their meager savings and 401k's to survive. That will cause the market to fall further. Previously I mentioned a Dow at 7000. Now I am projecting 6000. It seems all but inevitable.

a billion dollars later

We are in the home stretch. After raising over a billion dollars -who said there is a financial crisis?- voters will finally cast their ballots. Actually, many already have, so really what November 4 means is that we will finally know who they voted for. But that too we already know, so where is the news? There are more news-men (and women) than news.

It appears Obama will win this "historic" election. What makes it historic is surely the amount of money spent on it. That is $1 billion change you can believe in. Not small change either. As for the other change, we'll wait and see but don't hold your breath. What seems most likely is a lot of quiet backtracking and a ton of well worded and aptly delivered excuses. Why?

Because fundamentally people don't change. What we Americans really want is to keep living it up forever and then some. We want to spend more, burn more gas, buy more items, consume more. What we really want is (much) more of the same. The change has been all around us. The world has changed. The excesses of the past have come back to haunt us. The houses, trucks, boats, vacations, etc. that we could not afford. Now we want to change it all back.

Unfortunately, it is time to pay the piper. Not because of eight years of lack of oversight or trickle down, or anything like it. It is a quarter century or more of living beyond our means that is coming to get us. Twenty five plus years of the "American dream." Consumption that is about to consume us.

Let us go back to $1 gas, back to V8 trucks with leather seats and cup holders,  back to McMansions, back to cruises and other wild vacations. Back to the times of plenty. If only George Bush hadn't destroyed all our fun. But did he? For all the blame and and the low poll numbers, George W. did very little. Even his pal Cheney did very little other than make his friends tons of money, shoot his hunting buddies, drink too much, and fuel his ambitions of Stalin-like world domination. But we knew Stalin, and you Mr. Cheney are no Stalin!

The magic has not ended. Now, Mr. Obama will levy a carbon tax without raising gas prices, get universal health care without raising taxes, fix education so everyone can go to Harvard, give the middle class a break paid for by the very rich -who will probably abscond to the tax havens in the Caribbean or Bermuda- all while fighting what is probably a decade long depression, a quagmire in the Middle East, and  a  few many-trillion-dollar deficits. 

Not that McCain would do any better. He might have been more fun to watch, though. Sadly, what we really should have done is save that billion dollars for the many rainy days ahead.

no great depression (yet)

The financial news is split these days. On the one hand there are the headlines and front page stories telling us how bad it is and how we need to do something. On the other hand, there are the editorials and reviews reassuring us that this is not the Great Depression revisited.

To give credit where credit is due, the optimists and reviewers have more data to support their cause. But just how good is that data? We are told that during the Great Depression, unemployment stood at 25% and thousands of banks failed. In the Spring of 1929, 300 banks failed. That was almost six months before the stock market crash. In 1930, a thousand banks closed. By 1932, the Dow had lost 90% from its peak in 1929. Surely we are nowhere near these numbers.

That was at a time with no unemployment compensation, no FDIC to ensure deposits, and no stiff drinks to soften the blows. Nobody would even acknowledge that there was a problem and according to the WSJ, Herbert Hoover insisted that the "fundamental business of the country.. is on a sound and prosperous basis." Where have I heard that recently?

Surely, we must have learned something from the Great Depression? And according to Richard Quest of CNN London, we did. We did and we can rest assured that we won't make the same mistakes again. "We'll just make different mistakes," he quipped last night when the Japanese market tanked.

Let me go on record now. Our problems are much worse than they seem. The housing crisis is in full swing. One in six Californians is "under water" with their mortgage. At the time when most of the option ARMs are still in their five year honeymoon phase, where you can pay as much as you please. Well before the real crash so to speak.

Every day the headlines correct earlier estimates, and label them "too rosy." Everyday new revelations are made and all are bad to very bad. Unemployment may only be at 7% but you have to go past 7 to get to 25. If we learned anything in recent weeks, it is how incredibly fast we can move from seemingly innocuous difficulties to outright collapses.

The constant flow of information we are exposed to is not helping either. It is undermining our confidence. Many are already suffering from information overload paralysis. A lack of confidence is the key enemy of the American economy. That economy rests on consumer spending. In other words, it is unsustainable. But I would much prefer if it wound down gently instead of failing catastrophically as now seems more likely.

If half the population can no longer afford to spend money, and the other half prefers not to because they don't feel confident, then we are on a very slippery slope indeed.

I've said it before, time to buy gold. Cash is just paper, and when confidence is lost paper has no residual value.

retirement advice from the experts

I could not help but notice that three "eminent" financial institutions sent me invitations to retirement planning and wealth management seminars last week. I have received many such invitations before, and they come in a variety of "packaging."

Some are mere cardboard flyers sent out to everyone and their brother as part of our daily dose of junk mail. Others are printed on fine stationary and seated in thick padded envelopes. Some even include handwritten sections. All are there to let me know about seminars that will teach me how to manage my (non-existent) wealth or to plan my (still-far-off) retirement.

Isn't it somewhat ironic that the very people who are either teetering on the edge of bankruptcy or who have already gone over, are proposing to show me how to manage my money? The very same people who are now screaming for a government bail-out. Presumably, their track record speaks for themselves? It speaks louder to me than their gilded names, exquisite logos, copperplate, and stylized images that are supposed to evoke a sense of security, stability, and wisdom.

Here are a posy of "experts," certified with MBA's from the finest business schools in the country, who could not even manage to keep a financial firm going. An entity with no real operations, no equipment or hardware to take care of, no elaborate labor contracts, no complex logistics. A firm where people bring money in the back and you lend it out to someone else in front, reaping fees, commissions, interest, and other benefits for simply moving funds around.

Not only do the fat cats on Wall Street need my tax money to survive in their moment of need, they have simply have no shame. They have the audacity to want to teach something they obviously do not understand. Which goes to show you that their one and only skill and the source of their riches, is deception pure and simple.

and miles to go before i sleep

If you think the crisis is over, think again. The worst is yet to come. I don't want to sound like an alarmist, but it should be obvious to everyone now that this is true. There is simply no other way. Even if the Fed can restore normal lending in the weeks to come, the fallout from what went before, and what is underway is still to hit. The lag could be as long as six months to one year.

Banks have failed while others were taken over for peanuts. What that means is that many are out of work and soon many more will be. Of those who survived, the mergers are likely going to be followed by massive rounds of layoffs. People out of work will result in more foreclosures, and more losses. To say nothing about reduced spending. Remember, 2/3's of our economy is based on consumer spending. And much of that spending is on credit. Up to half of it comes during the holiday season. A season that is now upon us.

If the holiday spending is much reduced, and it will be significantly reduced, many retailers will go under. That too won't happen for another six to nine months. Apart from hitting pocket books, it will hit commercial real-estate. Other highly-leveraged businesses will fail soon too. Many in California got a bit of extra "help" here from the delayed budget. That budget has also pushed some cities over the brink. Vallejo went bankrupt, Oakland is considering 120 layoffs, San Francisco has problems.

Even in the mortgage arena there is more to come. The majority of the so-called option-ARMs have yet to reset. Sixty percent of these ultra-toxic loans are in California. Many have been negatively amortized for their entire life-span. So not only will people now have to pay the full price, which they were never able to, their loan balance is now higher than it was before they started.

Unfortunately, that is not the only problem. A key problem is that the recession will be world-wide. What that means is that exports will get hit and exports are -for now-the only bright spot left.

It has been said that we are a long ways from Great Depression II. As of today, there is no doubt. However, experts have been surprised before about how quickly and how profoundly things can unravel. The wizards from the Treasury, the Fed, and the Administration have all gone on record months before the current crisis, stating how solid the economy was, and how resilient the markets were.

I think it is time to buy some gold.

catch-22

You probably heard about the bail-out package. The $700 billion that is needed to "stabilize" the market. The $700 billion that will buy worthless debt "instruments" and straddle tax payers with excess pain for decades to come. But what you may not know, or may not have thought off is that this package will do nothing for struggling home-owners. It will do exactly nothing about the source the mess, the mortgage crisis.

What it will do, is allow banks to write-off or remove from their balance sheet, worthless paper. Toxic debt is the technical term. That will make the bank look better, and up its credit rating. That will make it so the bank can get more money and won't have to raise funding to shore up its collateral.

However, the plan can only work when two things happen. Things that nobody really wants to happen. Or at the very least, things that nobody should want to happen.

The first is the CEO's and other C-executives will walk away with millions in bonuses, severance, and other platinum or diamond-studded gold parachutes. All rewards for "a job well done." And there is nothing you or I or anyone else for that matter can do about it. Because those greedy executives will not sign on to a plan that forfeits their "packages." 

Guess what will happen to bank X if its CEO has to sign on to a plan that wipes out his/her package in order to rescue the company? If you said, he/she will let it go under, you win! Because that is exactly what will happen. No CEO will voluntarily give up their "benefits" in order to do his/her fiduciary duty or protect the shareholders. CEO's are eager to fire workers to protect the shareholders and boost margins, but don't touch their money!

The second is that the Fed will have to pay way too much for all that debt. If the Fed values the debt for what it is worth (nothing), then the cure won't work. Even if the Fed pays a more reasonable rate, the rescue won't work. The cure can only work if the Fed buys worthless paper for its over-inflated and unrealistic face value.

So here you have it. A package that buys useless paper at enormous cost with your money and rewards incompetent executives for their greedy misbehavior over the past five to eight years.

And what will this marvelous package do? It will restore confidence. It will make it so banks don't fail and so credit does not dry up. It will save the financial sector. It will do nothing, absolutely nothing for housing, mortgages, home-owners or anyone else. They will be left to pick up for themselves. It will do nothing about the next wave of upcoming foreclosures. It will do nothing about crashing housing prices, or lost jobs.

The banks sold everyone mortgages that they could not afford and then they packaged these mortgages with plenty of excess fat into investment "vehicles," that are now worthless because the collateral is not there (i.e. the house). So the bank has a problem, and guess what, we will bail them out.

depression

Most recently, on August 4th, I reminded everyone of the long slowdown that was yet to come. It now appears even I may have been too optimistic. At the time, my estimate was about 12-18 months of downturn. Now I would say it looks more like 3-5 years. Yes, years. You are not reading that wrong. And even that estimate could be way off. Because we haven't seen the end of the credit crisis yet. Not to mention that some people may actually be exacerbating it right now by short selling and other devious tricks.

One thing Mr. McCain said is very true. It was driven by greed. Greed all across the board. From the top to the bottom. And that is one thing Mr. Obama has a hard time admitting. It is easy to point to the rich, but this time everyone played along. The "regular" people had a very active role in all this. Of course, the damage they did was limited by their limited resources, but given that there are so many of them, their contribution cannot be ignored.

Before we give these candidates too much credit though, it behooves us to point out that stating the obvious is easy, however painful it may be to admit to it. Doing something about it is a different matter. And here is a crisis that was decades in the making. How to undo that is not trivial. It all started with Ronald Reagan's de-regulation mantra. Yes, it does go that far back. The anti-government stance that killed regulatory oversight is the root of it all.

Remember in the late 80's when books started appearing warning us of the great slowdown of the 90's? The new great depression. By the mid 90's you may even have joined in with the chorus of nay sayers who welcomed another doomsday prediction gone bad. But chances are you forgot all about it. Or it got lost in the fake scare of Y2K. Remember that one? That was an obvious hoax.

But the coming depression was not. It was merely postponed by a series of bubbles. Things like that happen. Money and paper gains just moved around from one bubble to the next, until they ended up in housing units that are emptily bleaching in the desert sun. Or nearly-paid-off units that were refinanced so their owners could upgrade their kitchens, bathrooms, pools, and SUVs. Now all these gadgets are sitting pretty in foreclosed properties.

During those bubble years we did nothing to make matters better. Quite to the contrary, we exacerbated the problems by venturing into Iraq. By giving tax cuts to the very rich. By further de-regulating and privatizing organizations.

Our war games have made matters much worse. It doesn't so much matter whether we win or lose, whether we leave with honor or not. What matters is that we have sunk inordinate amounts of money we don't have into a hopeless endeavor, whose only "saving grace" is that it made some people incredibly rich.

The money is gone and we have little to show for it. Sure we can pat ourselves on the back and say:"we turned a corner," but in doing so we left our hard-earned cash behind.

As for de-regulation and privatization, has it occurred to you that our government is now taking over the bulk of the financial and insurance industries? Freddie and Fanny, AIG, the list will get longer, rest assured. We are "nationalizing" industries. Hopefully we will be smart enough to regulate them as well. It would be foolish just to pay the bills without reprimanding the offenders. But then again, foolish things seem to be the rule these days.