Glenn has been pretty good at remembering to mention that his “Great Depression”® brand economic apocalypse talk has always carried the important caveat that downward pressure (ie terrorist attack, more Middle East instability etc) is necessary to get us there.
But to listen to the media-we're already all on the verge of starvation, and facing 1929 all over again. Luckily we have much needed analysis from Mike Dolan with Reuters to put into perspective what the Great Depression was (and how far we actually are away from it).
U.S. historians estimate that in the first 10 months of 1930 some 744 U.S. banks failed — rising to a total of 9,000 by the end of the 1930s. Savers lost the equivalent in today's money of $140 billion in deposits by 1933. U.S. unemployment rose to 25 percent from 4 percent in 1929 and prices and incomes fell by 20 to 50 percent over the same period.
The debate, as German government spokesman Thomas Steg noted this week, has become “hysterical.”
This crisis is serious, for sure. But there is a pretty good chance it is not 1929 — even if the U.S. Federal Reserve has adopted depression-era tactics to address it.
The one big bank that has “failed” in the U.S. –Bear Stearns, a non-consumer bank—was a very visible mess (even with the fact that the aftermath of the panic has resulted in the initial buy out being raised to 5 times its previous price.) But that's pretty far away from 744 banks in 10 months. Incomes falling by 50%? Not even close. And 25% unemployment? That's more than 5 times what we have now. I realize that no one is claiming it's that bad yet, but let's keep the great depression in perspective if we could. It was really “great.”
You probably didn't hear this anywhere either:
One important development this month — drowned out by panic surrounding the Bear Stearns rescue — was that credit rating firm Standard & Poors said the end was in sight for writedowns of the subprime mortgage assets that sparked the crisis.
Putting total writedowns at some $285 billion, it said the banking sector had already written off the majority of its distressed assets and more than $150 billion was already declared. First quarter writedowns at three Wall St firms that reported last week — Goldman Sachs, Lehman Brothers and Morgan Stanley — were indeed much less than analysts had feared.
S&P also emphasized that some subprime mortgage writedowns are larger than any reasonable estimate of actual losses. This raises the prospect that when the mortgage market normalizes, banks may be able to add “writebacks” onto quarterly results.
They've been wrong on writedowns before, but it's nice to see them be wrong on the GOOD side this time. The S&P points out what I have long thought was possible—it's worth repeating:
some subprime mortgage writedowns are larger than any reasonable estimate of actual losses
Unfortunately, much of this trouble is based on panic based fear. But fortunately, much of this trouble is based on panic based fear.