2009 Financial Crisis – Depressed: YES! Depression: NO!

February 16, 2009 by Jim Walberg · Leave a Comment

Bob Wuan of Vacation Finance is a fellow real estate writer on the internet. He is one of the most respected mortgage minds in our industry and I am glad to have him as a friend. We use the services of his company, Vacation Finance, for our clients needing a loan for purchasing their second and third homes.

Bob Wuan just published an article today that I wanted all of you to read. Mind set is still one of the most powerful aspects of our economy. I welcome your feed back on Bob’s thoughts.

America does seem depressed. Our immediate gratification society is bogged down in a recession that started over 12 months ago, and its starting to irritate us. But it is not (yet) a Great Depression. First, the banking crisis: 31 banks have failed in the last year, only 3 failed in the previous 10 months – an increase of 10 fold. That’s how the media spins it. But when you consider history – 4,500 banks failed in 1990s – 71% of the S&Ls fell in that recession. How is 31 worse than 4,500?

Next, unemployment is at a high for several decades, 7.6%+/-, in fact, this generation has not ever seen unemployment this high. Is it another Great Depression? No. By 1936 unemployment in America had reached 25.6% – it was likely higher since record keeping was less strict back then without social security numbers. In 1979 unemployment was 13.8%, which means the recession of the 1980s was two times worse than today’s. In the 1930s there was no unemployment insurance, when you were out of work, you were out of food. Today many layed off workers get months worth of compensation paid up front, or insurance benefits that replace 30-95% of their wages. Imagine our troubles if the 3.5 million unemployed were truly penniless today like in the 1930s.

Economies are built on a foundation of faith and trust. When our faith wains, so does our willingness to trust, trade and prosper. Over the last 18 months, we have begun to doubt, we have lost faith in our banking system’s stability – which is the life blood of all commerce. We questioned the bedrock base of our net worth and security in our homes. We have watched the unthinkable plummeting of our our home value – live and in real time with new technology like Zillow.com. Like checking a stock price from our iPhones, we can see if our home value declined over night. It has made each of us wonder “why am I going to work today?” Everything I work for is worth so much less than I had hoped. I earn money to watch if drop in value in my 401k. In the past, we would wait until month end or quarter end for a statement of progress, and depression would only set in after performance disappointed for a few quarters. Today, Americans ride a wave of instant news, instant disappointment and false senses of recovery when the markets (or local home sales) rise daily.

I blame our new ‘mark-to-market’ mind set. Watched constantly, a pot never boils. Criticism of our capital model has often included our inability to look out into the future (like Warren Buffett) and have confidence that we are doing the right things to deliver long term results and wealth. Instead we grade all actions off immediate results. CEOs get bonuses off selling cars today, even if those sales create long term losses due to crazy lease financed terms. Neighborhoods feel wealthier when the property developer sells the model home at an inflated rate to his cousin, and then appraisal reports show a jump in values.

When these games are realized months, quarters or years later, we all feel cheated by the market and the participants and 2008-2009 ‘depressions’ set in. This economic down turn is all mental. It is all about how we ‘feel’ about the economy, the rules, the participants, the future prospects. The facts tell a much different story, slow down yes, but 3.5 million jobs could be recreated quickly in America. Our trust, faith and optimism may take much longer to bounce back, unless we look to the horizon instead of our feet.

What your YOUR thoughts on Bob’s article about the mental aspect of our current economic crisis? Until next time, your real estate detective is looking at the horizon of the possibilities awaiting all of us. Until next time…

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