Daring to look into the abyss…

We spent last evening listening to some financial specialists that had flown from the Boston headquarters of our brokerage branch-office in Salt Lake City. A Q&A session followed their presentation and among the few that were asked, one came from a participant who wanted to know if following the “rescue” of Fanny Mae and Freddie Mac, we might be looking at a total loss of a trillion dollars by financial institutions before the dust would settle on that crisis. That thought didn’t go very far, because this time, unlike the S&L crisis of 1989, we simply don’t know how deep the abyss is and how well, if at all, the government “rescue package” may work. So here we are, experimenting with moves that are unproven and “hoping for the best.” I have said it before and I say it again, these government moves to calm the markets are just that. They only appease the symptoms in this election season but don’t work on the profound reasons for the crisis. My view is very simple; housing prices have yet to fall by a truly significant margin, and I mean 30 to 50%, not just 17% as is the case now, to “purge” the entire system of its ills. That means that a fall of that magnitude will have a huge consequence on the financial markets and that we're indeed talking about several trillion dollars loss before all is said and done. The bad news is that this descent to hell is likely to be protracted over the next couple of years and that our suffering and all that uncertainty are likely to endure for a long while…