Second Wave of Housing/Credit Crunch Blues underway
I suppose almost everyone knows that the anniversary of the 1987 stock market crash was noted yesterday by a 360 point selloff in the Murdoch (formerly Dow Jones) Industrials.
The stock market had recovered in zooming fashion from the mid August swoon as the credit crisis bloomed. But now it seems we have begun the second wave of selling, prompted by bad earnings reports that not only forecast more surely recession but also indicate that the banks and the financial system they manage have been damaged more severely than thought a few weeks ago by the credit crisis precipitated by the failure of mortgage-backed bonds. Which bonds have been failing because of dropping home prices and ill-advised home loans.
Click on the MONEY category link to the right here if you’d care to see prior postings on the crisis.
And if stories about “CDOs” again perplex, see our explanation.
Or go to Minyanville.com for extensive coverage of the macro-economic imbalances that underlie material life in these United States in the age of baby Bush.
Or see Naked Capitalism — a great one-man band re high finance.
The ’87 crash was huge — the Dow Industrials were down 22%, which today would be roughly 3,000 points. I remember I was walking around the Upper West Side, near Lincoln Center, with a femme friend from college. We saw people gathering in disturbed flocks, peering at TVs through store and cafe windows.
The big crash, it turned out, was a one-day wonder. Our current problems are not.
But the markets are better cushioned now than they were in the 80s. And the Federal Reserve is now likely to reduce rates more steeply and perhaps more quickly than was thought a few weeks ago. Difficult to call next week’s action, but the bias is certainly now again down.
And the prospects for the mortgage and housing businesses are not getting better.
No doubt we’ll muddle through, in the end. Rich getting richer and so on.
