Nifty. Nice charts, too.
How does all of this necessarily -- any by necessarily, I mean that it WILL happen becaue it MUST happen -- lead to an economic condition as bad as or worse than the great depression, and that there is no chance of any other outcome or condition.
BTW... Goldenboy thanks you for carrying his water for him -- its pretty clear you indeed have the grasp of the subject that he wants everyone to think he has.
Well, falling house prices and non-conforming loans that were made during the housing bubble defaulting were basically necessary for the economy.
House prices had to return to historical levels. People realized that houses were not worth the price, or there was an excessive amount of houses on the market. Either way, prices for houses were too high.
Loans that were made to underqualified (for lack of better term) buyers in the bubble were going to defualt, they had negative equity after home prices had declined. Basically meaning there morgage was now worth more than their house.
This compounded the problem because as people defaulted credit became harder to get, and demand for houses would drop more, and prices would drop more. Also foreclosed homes sell for less, and when a lot of foreclosures are happening it creates an excess of built homes in the market. This sort of thing feeds off of each other.
The rest of the financial market got pulled into the crisis because people began realizing that large players in the financial industry actually owned these loans. This caused a fear within the market. No one knew who had these bad assets so they were afraid to lend money to each other. When Lehman Bros. collapsed it turned into a full fledged panic. Banks were investing in only t-bills and bottled water, so the joke went.
Now the difference between this crisis and others is that this panic was not just a panic. Usually the fed can extend a line of credit to banks, and people will realize the money is still there, and the panic will subside. This time we were dealing with an actual solvency crisis. Thats why we had all the bailouts.
Now, how bad did this get? As it has already been said, yields on government bonds went lower than they did during the great depression.
That tells me the financial market was in worse shape. Luckily we have smart people at the fed that were able to save us this time around and keep the crisis more on wall street than main street when compared to the great depression.
Here is a cool graph comparing the worlds industrial production during the great depression and now:
Of course there is no way to prove what would have happened had we acted differently, so I cannot really tell you based on fact that what happened now, under the same conditions as 1929 would have played out for better or worse than the great depression. But I think you can see now that the actions taken by the fed and the federal government have been appropriate (in there aims, maybe not size) and useful in adressing our current economic recession.