Remember that quote? It still makes me giggle, especially since most knew at the time that John McCain was very, very wrong.
The more aware among us realize the Recession has been around for a while now, and now everyone's losing their jobs and losing their homes.
In my county and the neighboring county, unemployment is at a staggering 20%. The foreclosure to resident ratio in my neighboring county is the highest in the state.Most of us know where all this began: investment in housing. For the longest time when housing prices were so inflated as to induce laughter at the mere sight of the price tag (half a million for a dilapidated house in my father’s neighborhood was snatched up in no time), and nobody thought this would have to, you know, stop.
The experts were saying it would have to, but people refused to listen because they wanted to believe the realtors who swore that wasn’t the case. Because the realtors had no interest in lying to the public about any sort of bubble, right? We had our bank and others approach us to offer us home loans. Out of nowhere. Our annual income at the time was around $25k a year. Our credit scores were fantastic, but credit scores can change when a family making around $25k a year are talked into buying a $300k home. Because everyone wants that. Everyone wants to be able to buy a home. And I’ll admit, we considered it (for like, half a second. It took one look at the prices for us to realize that wasn’t possible no matter what we wanted. We’ve good credit for a reason).
People were going into interest-only loans where their $800 mortgage payment would balloon after five years into $3000. Some of these people were true victims, but I still believe many of them were just damn stupid.
You want to talk about entitlement? There's your entitlement.
And before we knew it, people owed more on their homes than the homes were worth.
And they couldn’t afford the payments.
The bank comes in and forecloses or the family asks the bank for a short sale (in which the bank basically forgives the remaining debt and takes the house to sell – hardly a “short” process)
But we’re hardly the first to think we can have everything we want, own things we cannot afford, and dive into an ocean of credit that will eventually return to stab us in the back.
Then the banks don’t want to give out loans to anyone. People lose their jobs because businesses need some loans to thrive and thus can no longer afford those employees.
A huge company defaults.
Throw a war in the mix,
And the economy grinds to a screeching halt.
And no, the Great Depression of the 1930s wasn’t the first time this sort of thing happened - just the worst yet. During my readings for my US History course, I came upon two panics which occurred during the 19th Century and found there to be many parallels. Upon more research I’ve discovered far more financial disasters our country has endured. This is hardly a comprehensive list, but I hope it says enough.
The Panic of 1819
War: The War of 1812, Napoleonic Wars
Speculative Activity: Real estate
Other reasons: American shipping boom ending, demand for American “foodstuffs” declining
Lasted: Five years
“The western land boom that began in 1815 turned into a speculative frenzy. Land sales, which had totaled 1 million acres in 1815, mushroomed to 3.5 million in 1818. Many settlers bought on credit, aided by small “wildcat” state banks that made loans far beyond their resources. This was not the first—or the last—speculative boom in western lands. But it ended like all the rest—with a sharp contraction of credit, begun on this occasion by the Second Bank of the United States, which in 1819 forced state banks to foreclose on many bad loans.” (Out of Many [1], 232, emphasis added)
The Panic of 1837
The War: None
Speculative Activity: The Second Bank of the United States
Other Reasons: Specie Circular of Andrew Jackson
Lasted: Six years
“The Recession of 1833-34 was followed by a wild speculative boom, caused as much by foreign investors as by the expiration of the [Second] Bank [of the United States]. Many new state banks were chartered that were eager to give loans, the price of cotton rose rapidly, and speculation in western lands was feverish. A government surplus of $37 million distributed to the states in 1836 made the inflationary pressures worse. [President Andrew] Jackson became alarmed at the widespread use of paper money (which he blamed for the inflation), and in July 1836, he issued the Specie Circular, announcing that the government would accept payment for public lands only in hard currency. At the same time, foreign investors, especially British banks, affected by a world recession, called in their American loans. The sharp contraction of credit led to the Panic of 1837 and a six-year recession, the worst the American economy had yet known.” (Out of Many, 284)
The Depression of 1873
The War: Civil War
Speculative Investing: Railroads
Other Reasons: Commercial Overexpansion
Lasted: 65 months (the longest in history at the time)
Unemployment: 15 percent+
“Mass meetings of worker in New York and other cities issued calls to government officials to create jobs through public works. But these appeals were rejected. Indeed, many business leaders and political figures denounced even meager efforts at charity. They saw the depression as a natural, if painful, part of the business cycle, one that would allow only the strongest enterprises (and workers) to survive.
"The depression of the 1870s prompted workers and farmers to question the old free-labor ideology that celebrated a harmony of interests in northern society. More people voiced anger at and distrust of large corporations that exercised great economic power from outside their communities.” (Out of Many, 457)
The Great Depression of 1930s[2]
The War: WWII
Speculative Investing: Stock Market investing. Investment in factories and new machinery led to overproduction, which lead to more stock investing. Loans given to invest in the stock market and for buying cars.
Lasted: Nine years
Unemployment: Nearly 30% in 1932.
I could go on. The Energy Crisis of 1970s (Vietnam War). The multiple recessions of the 1980s (I remember the late 80s one well). The dot-com bust of the late 90’s. And now the housing crisis of the late 2000s. The list is huge and goes back to the late 1700s for America.
It happens
In the words of John Rockefeller: "These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.”[3]
I could go on. The Energy Crisis of 1970s (Vietnam War). The multiple recessions of the 1980s (I remember the late 80s one well). The dot-com bust of the late 90’s. And now the housing crisis of the late 2000s. The list is huge and goes back to the late 1700s for America.
People are “scared” about Obama’s stimulus plans. They were fuming over Bush’s bailout plans. People were pissed off about some of Roosevelt’s solutions. And they still argue over whether or not it did anything.
But let's consider the alternative and if anyone has any other ideas?
“In neither 1837 nor 1819 did the federal government take any action to aid victims of economic recession. No banks were bailed out, no bank depositors were saved by federal insurance, no laid-off workers got unemployment payments. Nor did the government undertake any public works projects or pump money into the economy. All of these steps, today seen as essential to prevent economic collapse and to alleviate human suffering, were unheard of then. Soup kitchens and charities were mobilized in major cities, but only by private, volunteer groups, not by local or state governments. As a result, workers, farmers, and members of the new business middle class suddenly realized that participation in America’s booming economy was very dangerous.” (Out of Many, 284)
Before too long, few will remain who were alive during the Great Depression enough to really remember it. In time there will be none left who experienced it, and we will forget. In some ways we are ignoring it. We’re willing to allow people to lose their homes and with the potential live in squalor just so we can see which of us is the strongest (please go read John Steinbeck’s "The Harvest Gypsies". Unbelievable). We seem to think we should suck it up and let the market roll.
But couldn't we say that's kinda what got us in this mess in the first place?
While I’m hesitant of the bailouts (hated them) and of the stimulus plan, I have hope in Obama’s idea to invest in programs which will encourage economic growth. This doesn’t mean I agree with all of it, but I like the idea. And I realize it isn’t his idea, but modeled under FDR. Truly, what other choice does Obama have?
And truly, Bush followed the model, too.
Though the debt is and will be far beyond comprehension, I have hope that investing in infrastructure, education, and in green jobs will promote such growth that we’ll be able to pay this off.
We can learn from history, though. We have to take care when investing in speculative issues. We have to be informed. We have to think critically. We have to have an educated population. We have to be willing to dissent.
To this I add that we have to learn that if we’re too big to fail, than we’re probably too big. If it’s too good to be true, it probably is.
And it’s easy for me to say this. My husband still has his job. We’re able to afford a home now because of the bubble bursting. But that doesn’t mean what I’m saying is untrue. The market will recover. We need to take care of each other. We need to work with the government instead of against it. We need to be informed and educated and work with reason rather than emotion. It does seem to be the natural course of things for the universe to strike us back when we get too excited about money and material things – the problem is we’re not learning. And we won’t. But it is hardly the end of the world.
Footnotes:
1. Out of Many: A History of the American People. 5th ed, Volume 12. http://us.history.wisc.edu/hist102/lectures/lecture18.html
3. http://us.history.wisc.edu/hist102/lectures/lecture18.html
