Masthead graphic based on a painting by Gudrun Thriemer.

Sunday, January 18, 2009

David Goldman, "“The Credit Crisis Is Just Beginning” — I said so in August," January 18, 2009.

[David Goldman has actually been discussing the "credit rally" (and here, and here), and even a "sub-prime rally" quite a bit of late. Today, he evidently reverts to his earlier position in the form of this transcript of an interview with Bloomberg News, a year after the economic crisis started. -jlt]

  ...the most important thing is not to chase bubbles.


KEENE: Thank you for your perspectives through the year on this continued crisis. Same question I have asked everyone else, did you expect a year on, to be having the same conversation?

GOLDMAN: Yes, absolutely. This is not a recession, it’s not a blip. This is a change in the lives of Americans who spent the last 10 years in the delusion that they would fund their retirement by selling homes back and forth through each other at higher prices.

And the Street and the financial industry generally enabled them by sustaining this delusion and it’s now coming unraveled. No one is going to retire. Entire neighborhoods will turn into slums. Everyone’s exurb McMansions and financials will trade at 50 percent of book.

KEENE: How will we clear this challenge or will you and I will be celebrating this a year from now?

GOLDMAN: I think a year from now we are still going to have a very weak economy. That may be long enough to find the bottom, but it’s going to take a - or a rebuilding of household balance sheets. That is to say, a lot of saving.

And what we have now is more dissaving, where you have got a spike in credit card usage because consumers are trying to keep up their level of consumption, when they should be reducing it and saving. So, Mr. Market is going to have to kick their teeth down their throat to change their behavior.

Read the whole transcript here =>
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