Taleb: "We're In The Middle Of A Crash"

Real Estate Broker/Owner

Nassim Taleb, the author of "The Black Swan", said during a CNBC interview on July 2nd, "We're in the middle of a crash" when referring to the economy and banking system.  In other words, the crash is still happening and we have further to fall.

And while most reasonable people would come to the conclusion that the economy is still falling based on rising unemployment (yes, I know unemployment is a lagging indicator, but losing 467,000 in June tells you something) and the deterioration of the consumer credit markets and the housing market.

What Taleb did say that was interesting was that the government needs to, "stay out of monetary policy to get out of this".  This is after all a crisis that was in large part caused by a decade long loose monetary policy in which the Federal Reserve provided the conditions necessary for this credit bubble.  And yet here we are with the bubble bursting, and the Fed continues to pump trillions back into the system.

But Washington has a habit of doing the insane.

The first tranche of TARP didn't stimulate lending?  Let's release the second $350 billion.

TARP didn't work, so let's try the PPIP?

The first $7,500 first time home buyer tax credit in 2008 didn't work?  Let's do another $8,000 first time home buyer tax credit.  The seasonally adjusted rate of home sales has declined year over year for the past two years despite these tax credits.

The Fed's efforts to plunge mortgage rates and stimulate demand for real estate by buying $500 billion worth of mortgage backed securities didn't work, let's throw another $750 billion at it?

Monetary policy can't solve this economic crisis any more than the new PPIP will get banks to lend.  New and agressive fiscal policies focused on the housing market, consumer, and small businesses are what is needed. 



Comments (15)

Bridget Cella
Re/Max Connection - Sewell, NJ
e-Pro, Realtor

Any thoughts on when it may end?  Many have said that the market is still going down!  It is localised though, I have seen some prices level off.

Jul 12, 2009 01:25 AM
Charlie Ragonesi
AllMountainRealty.com - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros


I have to disagree as we see folks buying and getting into their first homes and looking for the 8k as well as the lower rates. The adjustment down in prices is not do to lack of demand as it is as much due to over inflation of prices. But your market was hit harder than ours  so maybe things are different

Jul 12, 2009 01:31 AM
Dennis Chanski
Hebron, CT

I agree that there are pockets of areas showing life, but still think that is the exception and not the rule.

I feel that many things that are going on are being done based on the "hey look were doing something" attitude.  The bottom line is that something needs to happen to start turning things around.

Jul 12, 2009 01:34 AM
Mark MacKenzie
Phoenix, AZ

Hi Bridget:  Nationally we have billions of mortgage resets through the first half of 2012.

Unemployment is not expected to peak until midway through 2010.  This means foreclosures may not peakuntil the beginning of 2011.

We have at least another two years of the current market, maybe three to four depending on just how bad the unemployment rate goes.

As the graph shows, 2009 is actually a modest year for foreclosures.  The massive foreclosure moratoriums have also helped make things look better than they actually are.

Jul 12, 2009 01:36 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

This is so simple.  They're throwing hard money at the banks and Wall Street and promises and smoke and mirrors at the American home owner who has seen their family wealth not only disappear but find themselves paying for an asset that have negative equity of twice the market value. 

The government doesn't fix anything.  They simply blabber those phrases.  Then they hand our hard earned tax money to their cronies and contributors. 

Don't be fooled into thinking the lawmakers and regulators give a fig about the average person.  They do not. 

They care only about themselves and their own political future. 

Jul 12, 2009 01:40 AM
Mark MacKenzie
Phoenix, AZ

Charlie:  Thanks for the comment.  The numbers that I look at and write about are national numbers.  It is true, according to the NAR home sales are still down year over year despite the tax credit and lower rates.  In fact, Arizona is one of only six states to see increases in home sales year over year.

Dennis:  Indeed, there are pockets, but they are few.  According to the NAR 90% of metros in the US lost value year over year from the 1Q08 to 1Q09.  Additionally, only six states saw increases in home sales year over year.

What this means is that the government efforts are not working to stimulate demand and absorb the excess inventory.  We are still in the middle of a crash.

Jul 12, 2009 01:41 AM
Mark MacKenzie
Phoenix, AZ


I appreciate the fact that you don't pull any punches. :)

Jul 12, 2009 01:43 AM
South Austin Real Estate Blog
Sky Realty South Austin - Austin, TX

The government needs to get out of the marketplace and let it correct.  Greed was instrumental in creating this mess and as long is somewhere someone is handing out money in the BILLIONS the greed will not go away.  The average American homeowner and tax payer is scared of what is next for them while another parachute opens somewhere... maybe its not golden now just silver lined.

Jul 12, 2009 02:01 AM
Kenneth Cole
Weichert Realtors Appleseed Group, 2043 Richmond Ave. S.I.N.Y. 10314. office phone 718-698-9797, Appleseedhomes.com... - Staten Island, NY
NYS Licensed Real Estate Salesperson

Correct me if I'm wrong.  If we are in "the middle" of the crisis, then we should be on our way "out"

Jul 12, 2009 02:04 AM
Jim Crawford
Maximum One Executive REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

Ths post is right on the money.  Unfortunatley most in our industry don't want to hear the truth.  This government has repeated the mistakes of the 1930s and infact has already prolonged the recovery.  We are going to drag our butts as the market drifts lower for many years to come. 

Jul 12, 2009 02:07 AM
Mark MacKenzie
Phoenix, AZ

Kenneth:  Yes, I do believe that in another 2-3 years the economy should have stabilized.  But that doesn't mean we are going back to where we were.

Jul 12, 2009 02:10 AM
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Mark, Robert Reich just wrote a blog entitled, "When will the recovery begin? Never."  It's an interesting read, and he continued by saying, "Until consumers start spending again, you can forget any recovery, V or U shaped."  The recovery, when it comes won't be anything like past recoveries.

Jul 12, 2009 02:24 AM
Monika Depalo
REAL ESTATE Agent/Stager

We have the lowest unemployment rate in Florida in 30 years many of our jobs are service related and tourist type.  We were hit hard with foreclosures like Arizona.  The new assessed tax values were just released and assessments are down across the board.  Many listers take their homes off the market and wait for a better time to sell.  Many paid more than they can sell it for.

Jul 12, 2009 02:43 AM
Tim Monciref - Austin, TX
Over 2,000 homes sold…..

Ahh, the battles of the theories of the micro versus macro economists.  It has been quite humorous to watch and listen to the different theories out there.  The micro guys are looking at the individual businesses and seeing huge potential whereas the macro guys say that is all fine and dandy but the potential will fall apart when the economy falls apart.  In reality no one can predict how human behavior over billions of people will react over the coming months.  The one thing that I have learned from 3 previous recession is that the public has reacted contrary to economists.  When that can occur is up to debate; but I think you are dead on by taking a cautious approach.  It is safe.  Others are sticking their neck out there and will either become very rich or very poor in the coming year.

Jul 12, 2009 04:49 AM
Charles G. Hennebeul

I can see why people read your blogs...you know your stuff man...Billions of dollars of commercial mortgages about to reset..what a nightmare...as painful as it may be the housing prices still need to correct ...downwards.  The S&L crisis took many years to unravel and some people did warn Congress that the crisis we are in now will be worse than the S&L crisis.  One of those people was Alan Greenspan!



Jul 13, 2009 02:59 AM