But we're all getting the shaft for years of risky lending and bad economic policy now. And it doesn't look like there's a damn thing any of us can do about it.
It could be worse - I could live in Iceland (or in Britain and have dough in an Iclandic bank) or any other small nation that depends on credit, banking and a robust world economy to survive.
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In addition, we're now likely to see substantially more defaults and credit panics in smaller countries and emerging markets. After Iceland's fall, every creditor to other nations with large deficits and substantial external debt must be looking for ways to reduce its exposure. The obvious risks include much of Eastern Europe, Turkey and parts of Latin America. Russia's difficulties show that seemingly solvent countries can be high-risk: While the Russian central bank has gold and foreign exchange reserves of $556 billion, the private sector has recently built up an estimated $450 billion of debt. Creditors don't want to roll over the debt, so the government is using its reserves to do it. It has already ordered $200 billion channeled through state banks to companies repaying debt. If oil prices fall, a seemingly highly solvent country could quickly look nearly insolvent. Some other rising stars, such as Brazil and even India, may have similar problems.
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What's really scary is that the guys who managed to steer clear of all the bad investment moves that are pulling down the rest of the economy are pretty pessimistic about the future. I'm sure most of the financial wizards (Warren Buffet and Andrew Weiss level wizards) will come out of it on their feet, but what about the rest of us?
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If you had invested $1 million in Andrew Weiss' hedge fund when he opened it in 1991, your stake would now be worth $14 million. But it's not just these stellar returns that have made Weiss one of the best investors of our era. He's also shown a gift for dodging financial bullets — a handy trait at a time when so many once-swaggering investors are bleeding.
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Speaking over the phone from his office as markets plunge around the world, Weiss, 61, says: "The possibility of a total financial collapse is higher than at any time I've ever seen. We just don't know how bad things could get."
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In the topsy-turvy world of investing, Weiss's lesson is worth remembering: when nobody is afraid, be fearful; when everybody is afraid, be bullish. The trouble this time, he warns, is that "things could get a lot cheaper. You have to be able to stick it out."
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Speaking over the phone from his office as markets plunge around the world, Weiss, 61, says: "The possibility of a total financial collapse is higher than at any time I've ever seen. We just don't know how bad things could get."
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In the topsy-turvy world of investing, Weiss's lesson is worth remembering: when nobody is afraid, be fearful; when everybody is afraid, be bullish. The trouble this time, he warns, is that "things could get a lot cheaper. You have to be able to stick it out."
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I'll feel lucky if I'm fortunate enough to be one of the lucky ones who still has a job in the near future, though it would be nice to also have the security of knowing that what little dough I've put away in the bank will be accessible in the near future. I've all but given up on my IRA and 401k being worth anything in the future.
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Until this passes, all normal rules of business, such as seeking to maximise the return on investment, are suspended. “It’s not the return on our money we’re worried about any more,” said one banker last week. “It’s the return of our money.”
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But how bad will it get? The rampant poverty of the great depression may seem mild to what some of the most radical are predicting will occur in the near future:
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I must caution everyone - if you are not prepared for six months to two years of unemployment, you need to be. If you are dependent on credit to survive (that is, if you couldn't make it without your credit cards) you need to fix that now.
Like today now.
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As credit collapses distribution of food and other essentials will break down. Unable to access credit, trucking companies will be unable to get goods to market. The current distribution system for food requires travel of over 500 miles from production to consumption; this is untenable in a market where stable credit is unavailable. Food distribution will be severely impacted and in some areas may break down below critical levels.
Unemployment will reach 25% within two years. Median income will fall by 30% nationally. Foreclosures will reach 20 million homes. The government will step in with HOLC-style remediation but it won't matter - the unemployed won't be able to pay irrespective of the price.
House prices will fall to well under $100,000 nationally on a median basis but with lending all but non-existent you'll need 50% down. A few people will make out like bandits near the bottom, being able to buy up homes for $10,000 each in blocks of 10 at a time - for cash. 60% of America will be renters; nearly half of all homeowners will ultimately lose their homes to foreclosure.
Civil unrest will break out in major cities when incomes fall but the cost of food and essential services fail to come down materially, leaving millions of Americans hungry, broke and homeless. Unlike in the 1930s America will not quietly stand in soup lines - instead they will riot, loot and burn. The National Guard will be called up but will find it impossible to exert meaningful control without shutting down all commerce in the affected areas. The decision will be made to cordon off the cities and deny entry to anyone who does not live in that specific neighborhood, essentially shutting down commercial activity. GDP will fall by 30%.
The S&P 500 will fall to 150 and flatline, a 90% loss. CNBC and Bloomberg will cease broadcasting. Volume will fall to 10% of former levels.
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Like today now.
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As credit collapses distribution of food and other essentials will break down. Unable to access credit, trucking companies will be unable to get goods to market. The current distribution system for food requires travel of over 500 miles from production to consumption; this is untenable in a market where stable credit is unavailable. Food distribution will be severely impacted and in some areas may break down below critical levels.
Unemployment will reach 25% within two years. Median income will fall by 30% nationally. Foreclosures will reach 20 million homes. The government will step in with HOLC-style remediation but it won't matter - the unemployed won't be able to pay irrespective of the price.
House prices will fall to well under $100,000 nationally on a median basis but with lending all but non-existent you'll need 50% down. A few people will make out like bandits near the bottom, being able to buy up homes for $10,000 each in blocks of 10 at a time - for cash. 60% of America will be renters; nearly half of all homeowners will ultimately lose their homes to foreclosure.
Civil unrest will break out in major cities when incomes fall but the cost of food and essential services fail to come down materially, leaving millions of Americans hungry, broke and homeless. Unlike in the 1930s America will not quietly stand in soup lines - instead they will riot, loot and burn. The National Guard will be called up but will find it impossible to exert meaningful control without shutting down all commerce in the affected areas. The decision will be made to cordon off the cities and deny entry to anyone who does not live in that specific neighborhood, essentially shutting down commercial activity. GDP will fall by 30%.
The S&P 500 will fall to 150 and flatline, a 90% loss. CNBC and Bloomberg will cease broadcasting. Volume will fall to 10% of former levels.
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Will it really get that bad? Probably not.
But could it? I guess we'll all find out in the months and years ahead. And this isn't even the most pessimistic outlook I've read in the past week.
