There was some surprisingly good economic news today, but still, only the perpetually positive business news shows and the supply-side crowd seem to think that we're going to be able to avoid a recession next year.
In John Hussman's latest commentary, he described how, before an appearance on CNBC last week, he was asked "to put a positive tone" on his comments lest the masses run for the hills in fright.
That might help ... a little bit ... for a while.
Martin Feldstein wrote an op-ed piece in the Wall Street Journal describing "How to Avert A Recession". It seems that a more accommodative monetary policy and fiscal stimulus (i.e., more easy money and more government debt) are the key ingredients to his plan.
If international dollar holders begin to complain, he recommended less of the former and more of the latter.
But, in yesterday's Washington Post, Steven Perlstein seems to have written the most insightful (and frightening) summary of where we might be right now, that is, from a broader historical perspective.
Any mainstream media news report that starts out with a reference to Charles Mackay, author of Extaordinary Popular Delusions and the Madness of Crowds, immediately grabs my attention, as it should yours.
It's Not 1929, but It's the Biggest Mess Since
It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one.
are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen. Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression. Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There's even a growing recognition that a recession is over the horizon.
But let me assure you, you ain't seen nothing, yet.
What's important to understand is that, contrary to what you heard from President Bush yesterday, this isn't just a mortgage or housing crisis. The financial giants that originated, packaged, rated and insured all those subprime mortgages were the same ones, run by the same executives, with the same fee incentives, using the same financial technologies and risk-management systems, who originated, packaged, rated and insured home-equity loans, commercial real estate loans, credit card loans and loans to finance corporate buyouts.
It is highly unlikely that these organizations did a significantly better job with those other lines of business than they did with mortgages. But the extent of those misjudgments will be revealed only once the economy has slowed, as it surely will.
He goes on to talk about CDOs and all the other financial alchemy on Wall Street and why the Federal Reserve is about to make its third rate cut in three meetings when labor markets appear to be sound, inflation is tame, and the dollar is plunging overseas. Not much makes sense these days and by almost all accounts, 2008 is shaping up to be one of the most exciting years for financial markets in quite some time. Mr. Pearlstein probably shouldn't hold his breath waiting for any phone calls from CNBC asking him to appear.
