where’s the great depression when you need it?
by Cynthia Flores
Published: April 4, 2008
On March 10, 2000 the NASDAQ composite index reached it’s zenith at 5,048.62, a little more than double what it was a year before. The previous 5 years had seen incredible growth in the tech sector. It seemed that the secret to quick financial gains lay in attaching .com to your name and then finding the quickest route to an IPO. For those who weren’t dialed into the economy back then, there was a ubiquitous catchphrase that was splashed all over the media: The New Economy. It was suppose to be a place where the internet tapped into a store of knowledge and ingenuity that had previously eluded mankind. Long gone were the bears and the banes of the business cycle… at least until March 11, 2000.
That was when we found out that the New Economy was made of the exact same stuff as the old one. We should have seen it coming. Our grandparents and great grandparents said the very same thing during the 20s, and then they ran smack dab into October 29, 1929. But we didn’t, and over the next 2 years roughly $5 trillion dollars worth of market value was wiped out, vanished into thin air.
And what did the government do in response? Not much. Well, not necessarily. They scoured over financial statements to see which companies had overstated earnings or underreported debts - then they mercilessly fined them and threw their executives in jail.
It was awesome. Exactly how the government should respond to a bubble; throw salt on the economic wound so that future players remember not to recklessly speculate. Then let the market do the rest.
We are now in the midst of a similar implosion, this time in the housing industry. Funny thing though, the government is taking an entirely different approach to this bubble. Politicians and government officials are tripping over themselves in an attempt to prop up the faltering market, sustain the bogus business model and reward the reckless. The explanation is simple: in 2000 the “victims” were programming geeks, cocky upstarts and wealthy venture capitalists. This time the “victims” are Timmy and Donna American and the investment being pummeled by the correction is a home, not a portfolio. The media and politicians have an emotional attachment to the housing industry; it’s where the heart is, after all.
So instead of letting both bankers and buyers learn their lesson the hard way, the government (i.e. taxpayers) is going to intercede. Congress has just authorized the subsidization of those communities hardest hit by the foreclosure crisis and the Fed has made billions of dollars available to the banking industry to ease its financial burdens. Media outlets cheer on the flurry of activity because, “Something must be done!”
But before you buy into that approach, let me ask you, have you ever met someone who lived through the Great Depression? If not, I’ll tell you about them. They save the twisty-ties from bread packages because, “You might need those some day.” And their empty peanut butter jars are used as mini-storage containers. They learned the hard way not to waste anything. They were educated by our economy’s finest school master - the Market Correction.
So go ahead and bail out Bear-Stearns if you must. And while you’re at it, let every moron who thought that houses always increased in value at the reasonable clip of 25% per year keep their 4 bedroom 2 baths. But remember, by saving Timmy and Donna from the consequences of their own greed or naivety, you have given birth to a generation of like-minded fools and saved a host of banking executives from their rightful and necessary fate - the ax.
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April 9th, 2008 at 12:41 am
So we’re just suppose to watch the housing market go down the tubes? Brilliant.
April 13th, 2008 at 10:04 am
the housing market has already gone down the tubes. is josue so naive as to believe that creating yet another bubble will solve that? of course, if the goal is only to “do something” without any regard for the actual consequences, then perhaps it really doesn’t matter.
April 15th, 2008 at 12:46 am
Now I’m all for the government staying out of everything, however the housing market is just a bit vital to our country’s well being.
Our government is not reacting Correctly, or well, or effeciently to the problem, instead they are wasting billions of dollars on tax rebates and bailing out companies when what really needs to happen is bailing out those people who are losing their homes.
What should have happened was in nov/dec of last year when it became blindly obvious that there was a major problem, the federal government should have bought out the loans of all the low income families that couldn’t afford their skyrocketing mortgage rates, and refinanced those loans to soemthing affordable.
Now instead of bailing out families and people our government is trying to bail out the incompetant bank managers who have ruined our economy with some dunderhead policies that suckered in millions of people.
Good job banking industry! Government: please wise up and stop doing the wrong thing….
April 16th, 2008 at 2:40 pm
How is helping lower and middle-class homeowners avoid getting kicked out of their homes going to create another bubble. The market has already sent a clear message to all of the particpants in the previous bubble that they’re speculative measures were a disasster. The message is already clear. Let’s not let the mistakes of the few suck the entire economy down with them. Intervene, intervene, intereven!