22 September 2008

the CRISIS calendar

study this chart very carefully (there will be a quiz later, click to enlarge)

from the lows of
March 2003, (hmmm, what else started in March of 2003 ?) existing home sales climbed 24% in 28 months, while the % of sub-prime loans that fueled those sales grew 150% (from 8% to 20%) notice anything kinda funny? like maybe that existing home sales peaked at the end of the summer of 2005 ? (single-family home construction also peaked at the same time)

and the FED ? well for most of the 5 quarters after the beginning of the War in Iraq, the FED held interest rates at the historic low of 1% until they commenced in late 2004, if i remember correctly, a series of 17 rate hikes of 1/4% each that ended in late spring of 2006 with the rate at 5.75%, where it stayed until the beginning of 2008.

so that means existing home sales/construction peaked about 9 months after the FED began hiking % rates, when the rate had only yet climbed to 3.75%.

then what happened ?

well the FED continued it's rate hiking as home sales/construction declined from August 2005's rate of 7.21 million, down to 6.75 million by the spring of 2006 when the FED concluded it's series of rate hikes. but nobody felt any panic, not even when home sales/construction continued to decline to 6.25 million just a few short summer months later. mortgage rates were still historically low, and easier to get than ever. and after the elections of 2006, the sales/construction even spiked back up in early 2007. no reason for panic at all. right ? not for long.

by 2007's 4th anniversary of the beginning of the War in Iraq, home sales/construction had dropped over 13% in two months, yet still no panic. only rumblings in the market newswires that if such a trend continued, some big name homebuilders and mortgage makers could be in for a rough ride.

the trend continued.

just four months later, home sales/constructions were down to almost 5 million units/year run rate. a 33% drop from the run rate of just 8 months earlier. CountryWide had gone bust and Jim Cramer was screaming bloody murder on the tele, saying Bernanke had no *&^%$#! idea how bad things were.

and yet they panicked not still.

the FED finally got around to lowering interest rates a bit 8 or 9 months later, in early 2008, then opening funding windows by the summer, to throwing boatloads of money into the markets on a near daily basis by Labor Day. but the boatloads of $ and the "bazooka" that Congress gave Paulson in July that he said he would "never have to use, just by the virtue of having it", got used just 8 weeks later on AIG, to "stem the panic".

the panic was not stemmed.

so here we are, 4 years after the %rate hikes began, 3 years after the housing peaks, 2 years after the Democrats unexpectedly took over the House and the Senate due to the incompetence and corruption of the Republicans, and 1 year after the largest home mortgage maker, CountryWide, went ka-busto, and with 500 BILLION DOLLARS pumped into the system by the FED already so far this year...

(and asks - demands? - unprecedented amounts of authority and money, with NO judicial review/oversight)

you can PANIC NOW ... (but not for the reasons you might think)