Simon Johnson, in the May 2009 issue of The Atlantic:

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

Peter Schiff:

I think things are going to get very bad.

Nouriel Roubini:

Things are going to be awful for everyday people.

Michael Lewis:

The era that defined Wall Street is finally, officially over.

Rebecca Brock:

People say to me, "Whatever it takes." I tell them, It's going to take everything.

From the archive:

My heart swells in my chest and while I laugh,
I feel fear, smell a faint stench of insanity.

The Quiet Coup

A highly recommended interview with Ray Dalio:

Everybody should, at this point, try to understand ... that we are in a D-process. The D-process is a disease of sorts that is going to run its course.

2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people. Everybody will be second-guessing everybody else.

If you think that restructuring the banks is going to get lending going again and you don't have to restructure the other pieces -- the mortgage piece, the corporate piece, the real-estate piece -- you are wrong.

There are too many nonviable entities. This is basically a structural issue. The '30s were very similar to this.

In late 2009, or more likely 2010, it is going to be a buying opportunity of the century.

From 1998, Stewart Brand:

This is a cross-generational issue. It's caring for children, grandchildren. In some cultures you're supposed to be responsible out to the seventh generation -- that's about 200 years.

From a year ago, Barry Ritholtz:

You're supposed to raise your standard of living by working harder, being clever, earning more income -- not by using your long-term savings. And now this current generation is pretty much fucked.

From 2007:

"Mom, we killed women on the street today. We killed kids on bikes. We had no choice."

Recently:

It’s hard to get people to do something bad all in one big jump, but if you can cut it up into small enough pieces, you can get people to do almost anything.

From late 2008, Peter Schiff:

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

Recession? No, It's a D-process, and It Will Be Long

Mark Jickling, at CRS:

The current financial crisis began in August 2007, when financial stability replaced inflation as the Federal Reserve’s chief concern. The roots of the crisis go back much further, and there are various views on the fundamental causes.

It is generally accepted that credit standards in US mortgage lending were relaxed in the early 2000s, and that rising rates of delinquency and foreclosures delivered a sharp shock to a range of US financial institutions. Beyond that point of agreement, however, there are many questions that will be debated by policymakers and academics for decades.

While some may insist that there is a single cause, and thus a simple remedy, the sheer number of causal factors that have been identified tends to suggest that the current financial situation is not yet fully understood in its full complexity. This report consists of a table that summarizes very briefly some of the arguments for particular causes, presents equally brief rejoinders, and includes a reference or two for further reading.

From the archive, Niall Ferguson:

This crisis is about much more than just the stock market. It needs to be understood as a fundamental breakdown of the entire financial system.

We shall now have to question some of our most deeply rooted assumptions -- not only about the benefits of paper money but also about the rationale of the property-owning democracy itself.

From the archive, Nassim Nicholas Taleb:

Many hedge fund managers are just picking up pennies in front of a steamroller. And sometimes the steamroller accelerates.

Causes of the Financial Crisis

Norm Augustine on economic depression and Obamania.

Ninety percent of the time things will turn out worse than you expect. The other 10 percent of the time you had no right to expect so much.

Most projects start out slowly, and then sort of taper off.

Augustine's Laws

Some caution that President Obama’s proposals try to achieve too many objectives at the expense of focusing tax dollars on the core issue of job creation.

In April, the recession would become the longest since the 1930s.

“We are in the thick of it now,” said Robert Barbera, chief economist for ITG Investment Technology Group.

Regarding the public:

My heart swells in my chest and while I laugh,
I feel fear, smell a faint stench of insanity.

Regarding Obama:

He has to start deciding whom to disappoint.

Recall Sequoia:

Get Real or Go Home.

Two quick reminders from Peter Schiff:

Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things.

I think things are going to get very bad.

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

All Under the Umbrella of Job Creation

David Rosenberg says this is Must Read.

The idea that the American family will quickly spend us out of this recession is a fantasy.

In this article, WSJ profiles an Idaho family:

"We never go downtown anymore," says Mrs. Capp.

From the archive:

KRAMER: It's a whole different world downtown-- different Gap, different Tower Records, and she's a 646.
ELAINE: What? What is that?
JERRY: That's the new area code. They've run out of 212s, so all the new numbers are 646.
ELAINE: I was a 718 when I first moved here. I cried every night.

Also:

"I think you need to have a downtown that's hip and cool and that people really want to come to," he said.

From a few years ago:

"It's getting very chic down there."

It's gotten very chic almost everywhere in Manhattan.

And from just a few months ago:

“I wish I could go down there more,” said Ms. Clark.

The WSJ also profiles another family. The mother observes:

"Not many people know eggs freeze."

A parting thought:

"People loved comedies during the depression, too," said R. J. Cutler, executive producer of "Flip That House."

He's referring to GDI, but he's thinking about GDII.

Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes

Until David Rosenberg's recent research report is recovered (or is replaced by today's report), here's a roundup of recent media reporting in which Rosenberg appears.

On CNBC yesterday, he said:

"It’s pretty fool-hearted to believe that anything is going to reach any sustainable low until we put in a firm bottom on residential real estate valuation across the country."

He was brought in to CNBC to discuss his latest FT article:

We expect to be in recession through to the end of 2009 at the earliest, even with the help from intense monetary and fiscal stimulus before a recovery takes hold in 2010. Sustained negative wealth effects from the slide in housing and equity prices will reinforce the uptrend in the personal savings rate. This, in turn, creates a highly disinflationary environment as job losses mount and pushes the unemployment rate up towards 9 per cent in the US in the coming year.

What we probably need is a supply-side resolution, either creating regional land banks to ring-fence the inventory or a moratorium on new housing starts to prevent further corrosion in residential real estate values. Supply-demand divergences are likely to persist through 2009, in our view, and will require even further contraction in construction activity before balance is restored in the real estate market.

In a story for Reuters from earlier this week, he is quoted as saying:

"The pullback in consumer and business spending in the coming year will likely be so big that even under the latest leaks on the size of the coming fiscal package, we think it will barely offset half the retrenchment in organic private sector GDP."

Rosenberg is apparently quite vocal lately:

The [recent market] rally appears to hinge on a growing consensus view that the economy will start to rebound in the second half of 2009. And guess what? That view is almost certainly wrong, growls David Rosenberg, Merrill Lynch's North American economist, in reports published every day of the new trading year.

You see, he "growls" because he's bearish.

Here's another:

"The market may be focused less on the patient right now and more on the cure. This, in turn, means that the doctors better come up with something that is going to turn the economy around."

In the Monitor:

The US has experienced a two-decade expansion of credit availability – punctuated in recent years by phenomena such as mortgage loan... [ Read More (0.3k in body) ]

Rosenberg Roundup

Paul Krugman:

Too much of the economic commentary I’ve been reading seems to assume that once a burst of deficit spending turns the economy around we can quickly go back to business as usual.

In fact, however, things can’t just go back to the way they were before the current crisis.

Something new could come along to fuel private demand, perhaps by generating a boom in business investment. But this boom would have to be enormous ...

A more plausible route to sustained recovery would be a drastic reduction in the US trade deficit. But it will probably be a long time before the trade deficit comes down enough to make up for the bursting of the housing bubble.

It may take a lot longer than many people think before the US economy is ready to live without bubbles.

From a year ago, Eric Janszen:

That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function.

From last month, Peter Schiff:

I think the only sectors of the US economy that are going to improve are going to be those that are related to exports -- manufacturing, mining, energy, agriculture, commodities-related businesses. I think the slowdown in the global economy will be short-lived. But I think the US depression is going to be with us for a long time.

Life Without Bubbles

The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being.

American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments. A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.

To be truly challenging, a voyage, like a life, must rest on a firm foundation of financial unrest. If you are contemplating a voyage and you have the means, abandon the venture until your fortunes change. Only then will you know what the sea is all about.

The inflation may be severe, implying massive unjust redistributions and at least a temporary grave degradation in the price system's capacity to guide resource allocation. But even this is almost surely better than a depression.

Behind the recent bad news lurks a much deeper concern: The world economy is now being driven by a vast, secretive web of investments that might be out of anyone's control.

Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom" and the resulting market turmoil isn't showing signs of abating.

In the 2009 budget, the White House wants to cut about $200 billion from the government's medical programs for seniors and the poor. The longer-term picture is darker.

The rescue operation brings to mind John Kenneth Galbraith's dictum that in the United States, the only respectable form of socialism is socialism for the rich.

This was the largest two-day advance since 1987, and, more importantly, the rest of the entire list is populated by the Great Depression.

It was so obvious it was going to fall apart eventually. What is so amazing is how long it took to actually happen.

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

Watch the Case/Shiller HPI continue to plummet as delinquencies ... [ Read More (0.2k in body) ]

Economics and Crisis | Another Noteworthy Year

Peter Schiff:

Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things.

I think things are going to get very bad.

Recently, Peter Schiff:

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

Take note:

If today we are shocked by shenanigans like the Enron debacle, insider trading, mutual fund abuses and the prevalence of special interests in politics, we need to get some perspective on our history.

Here's Thoreau:

“Men have an indistinct notion that if they keep up this activity of joint stocks and spades long enough all will at length ride somewhere, in next to no time, and for nothing; but though a crowd rushes to the depot, and the conductor shouts ‘All aboard!’ when the smoke is blown away and the vapor condensed, it will be perceived that a few are riding, but the rest are run over.”

Nassim Nicholas Taleb:

Many hedge fund managers ... are just picking up pennies in front of a steamroller. And sometimes the steamroller accelerates.

Jules Dupuit, via Ross Anderson:

It hits the poor, not because it wants to hurt them, but to frighten the rich ... Having refused the poor what is necessary, they give the rich what is superfluous.

Financial doomsayer Schiff still grim on future