THE HAMPTONS MELTDOWN.
I get no respect. The way my luck is running, if I was a politician I would be honest.
— Rodney Dangerfield
As the politicians and media play out their roles in the recent real estate hysteria in the Hamptons, all eyes are looking away from the mismanagement and incompetence in the face of this financial Armageddon.
General Motors is facing the possibility of bankruptcy, Citigroup is certainly not making Saudi Prince Al-Waleed happy and AIG stumbles along on Federal loans.
Those who have been reading the tealeaves, including financial consultants and media gurus, watch Wall Street galloping away from the true cause of our potential financial demise – the derivatives market. Yes, that’s the $700 Trillion dollar elephant in the room. AIG is only a small element of that giant scheme which wrote insurance on sums that could never have been covered in case of a default.
Of course, that’s more difficult to comprehend and impossible to prosecute. It is an amorphous ride into Hell that makes Dante’s Ninth Circle seem like a trip to the Caribbean. Warren Buffet warned us all many years ago, as he started to unwind counterparty positions, that there was a ticking time bomb in our financial system. Even he has lost billions as a result.
As we consider the non-existent sales market -- auctions, short sales, and foreclosures have grabbed the headlines. But, until there is liquidity and a return to lending, all bets are off. Look for a shrinking of the commercial real estate market, downsizing of almost all businesses and the quiet disappearance of many real estate brokers. Jobs will also be difficult to find, except in the seasonal summer months.
This time around, unlike the crisis which began with the 500 point drop in the Dow in 1987, it is possible that the Great Recession may last anywhere from two to five years longer. Some predict that we will not be out of this until 2020.