Theme of the Year #1: The Great Recession

As winter rolls in and the season of office parties fades into the season of empty offices, it is time to pause and take stock. It is hard to imagine that we will be looking back on 2009 as the good old days any time soon, but things  could certainly have been worse.

Train_wreck_at_Montparnasse_1895The end of 2009 also marks, more or less, the end of the first year of this blog. So it makes sense to review the year by reviewing the year in the blog. In the next few posts I will be highlighting a few general themes that emerged as the year went on. Today it is the most obvious of topics, The Great Recession.

What set off the GR was best discussed here at Bad Money Advice in a book review I wrote (in two parts) of the probably now forgotten The Wall Street Journal Guide to the End of Wall Street as We Know It. I meant to do more book reviews when I started this blog.

There are lots of ways to cause a recession. This one had as its ultimate source a bubble in house prices, but it was the knock-on effects of a credit crisis, and, I would argue, the inability of the government to handle that crisis, that made the Great Recession great.

In hindsight, the first quarter of 2009 was the nadir of the GR in terms of fear and panic, if not the bottom in strictly economic terms. And what did we spend our time yelling at each other and our TVs about? Falling house prices? Regulatory inadequacies? Those got discussed, but relatively calmly, which is to say boringly.

The big topic for the excitable types was Wall Street bonuses, particularly those paid out at ward-of-the-state AIG. I wrote some thoughtful words on the topic. Probably some others did too, but it was all drowned out in an orgy of rage venting. After a while, spring came and people calmed down and/or moved onto something else to get agitated about. All that’s left seems to be a paranoid cult of Goldman Sachs persecutors.

As part of my predictably unsuccessful efforts to focus the discussion on what was more important, in February I wrote a post laying out the truth about house prices. Basically, in inflation-adjusted terms they don’t go up and never have. A person could complain I pointed this out a few years too late, but I was only repeating data from Robert Shiller’s bestselling book, Irrational Exuberance, first published in 2000.

By March, the whole thing had been reduced to a remarkably popular cartoon. My post that linked to it, The Best Cartoon Explanation of a Financial Disaster Created by an Art Student in California. Ever.  is still one of the most popular posts on BMA, despite the many other blogs that also linked to the masterpiece. The video’s own site has a counter reading 1.1M hits. And they sell T-shirts.

Of course, I also discussed the government’s, particularly the then new administration’s, efforts to deal with the GR. I wasn’t always very generous in my comments. By May I was regretting that, as I summed up in this post.

Also in May I foolishly attempted to provide some historical perspective on the financial panic with This Time it’s Not Different. Silly me. If people were capable of understanding that history repeats itself, it wouldn’t.

By the fall it became clear to observers that the worst was over and we were in a recovery. Not that the media could let go. The Great Recession is great copy. By October I was writing about how house prices really had bottomed out.

Meanwhile the media continued  to report on how bad things were in the housing market, periodically rediscovering the concept of defaulting on an underwater house even if you could make the payments. (A.k.a. strategic default, ruthless default, walking away, jingle mail, etc.,) The Wall Street Journal was reporting on this trend as late as December 17th. I discussed why the whole thing was overblown a few weeks before that.

So what have we learned from the Great Recession? How will this watershed event in all our lives change the way we act in the future? My money is on, respectively, almost nothing and hardly at all. September’s first anniversary of the financial panic occasioned many people to list lessons learned, which occasioned my posting about how it was all nonsense. Not capable of leaving it at that, the next day I posted a list of things I wished we had learned but almost certainly hadn’t.

Truthfully, even I am a little disappointed. About a year ago somebody clever quipped "Too big to fail is not a policy." In the heat of the moment even I thought that we would see some action on what seemed to be a general consensus that there needs to be some method to the madness of backstopping the financial system. I guess not.

Tomorrow another theme of the year: credit cards and ID theft.

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