That’s what the so-called “financial crisis” of 2008 has cost the federal government directly… so far.* Wonder how that stacks up to other crises? CNBC has a slideshow showing the costs (inflation-adjusted) of some of the biggest government projects ever.
There are many events not listed in that slide show, of course. Two of the most notable: the Civil War ($60.4 billion in 2008 dollars, for both sides) and World War I ($253 billion in 2008 dollars).
For comparison, $4.28 trillion is approximately 31% of 2007 US GDP. It’s also 167% of 2007 federal tax revenues. How’s that for deficit spending?
You may bring your eyebrows back to earth now.
* Some of this money is in the form of loans. Many of these loans are to companies hemorrhaging cash faster than they can borrow it and are explicitly designed as relief against bad assets, however, and the crisis is hardly over. So, counting this money as lost is only wise.
Elliott Wave International asks, “Are stocks really a bargain?” If you believe your eyes, the answer is pretty clear.
P.S. In case you were wondering what the current DJIA dividend yield is (click the link above to see why this is relevant), you can see that here.
Let’s all hope this, at least, does not repeat. It’s a miracle the American Dream has survived this long.
Not Everyone Should Own a Home. Amen. What the Australians, the Europeans, and those who actually have to make their living in banking all get is that many, many people lack the means and others the responsibility to own their own homes. What was lacking in the run-up to the current bubble was not regulation. On the contrary, what was lacking was a free market – lenders were pressured more and more forcefully into suicidal maneuvers; most of them, facing oppressive government in the short term, opted for the long-term risk, held their noses, and took the plunge. And here we are, having inflated credit and the nominal money supply beyond all reasonable bounds, watching institutions which weathered two world wars and the Great Depression fold on a weekly basis. Methinks the problem was not leaving them alone too much of the time…
I have nothing against credit card companies or other commercial lenders. They provide a valuable service at the rates (prices) the free market will bear, and that’s a good thing. That said, I am sometimes amazed at some of the great deals a credit card company will offer me. Like the cash-back program one credit card company wants me to enroll in. I can get 2% cash back, up to a maximum of $100 annually, for a semiannual fee of $64.99. Say what? I may be a math major and lawyer (though not licensed yet), but I do like to think most people can comprehend how this works. Is that really the best offer my bank wants to throw at me this month? I’m a little offended.
During the Republican debate at the Reagan Library, John McCain was asked:
[Do] you have a plan to help people with bad credit get lower interest rates so they can keep those homes and avoid foreclosure[?]
Any answer to that other than “No,” “What?”, or “Why?” demonstrates a misunderstanding of how we got to where we are economically and how we’re going to get back out. The private sector – the free market – actually goofed. Big time. It made lots of loans to people who couldn’t pay them back, then loaned out those loans and made still more loans on the backing of those meta-loans. It’s precisely the availability of unreasonably low interest rates to high-risk borrowers that created the housing bubble and that is currently bursting it. Worse still, in order to get out, we are going to have to deal with that fact and let private industry take the hit, at least to some extent. The last thing we can do is force banks to take on more bad debts – debts which are already in or near default – and take them for longer term. Even if there’s no forcing, but only incentivizing through government aid, we are doing nothing but encouraging more risky behavior and trying to put duct tape on the bubble.
McCain’s answer started out:
Yes, and it’s tough and it’s tough here in California, it’s tough in Arizona, it’s tough particularly all over, but it’s very tough particularly in the high growth states.
McCain is a good man, but he is not a conservative, and he has no idea how to lead this country back to financially solid ground.
I had a problem with a credit card, earlier (a technical glitch on a modem apparently freaked out the bank’s anti-fraud system). So, I had to call the customer service number. “Cynthia,” whom I am pretty sure was in Mumbai or some such place and who barely speaks any English, proceeded to explain that there was a “temporary authorization pending release hold.” Now, I’m fairly familiar with credit card jargon from dealing with cards in my businesses, but I had no clue what that meant. I had to ask her five or six times whether or not I was going to be charged for purchases that were not, in fact, completed. Hopefully not, but I’m still not convinced.
Whatever one thinks of globalization, it is just not okay to outsource the handling of my sensitive financial data to people who cannot even communicate to me whether or not I’m being charged for incomplete transactions. I can’t say I’m terribly comfortable with the fact that my SSN and credit information are floating around in numerous underdeveloped countries, either.
Edit: What made this worse was that there was no one story for what had happened. Basically, about a dozen random combinations of the words release, authorization, funds, hold, temporary, pending, etc., were used to describe my plight. “Cynthia” also told me several times that the charge would or would not be applied. It looks like I was not charged, but the conversation is no less ridiculous as a result.
New home sales fell by five percent in January, while the supply of new homes available for sale hit a nine-year high. Could this be the beginning of the housing bubble burst?
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