Our Advice in 2005:

" I believe that we are at the end of the national real estate boom that started in the late 1990s. Home buyers, home builders and mortgage lenders must become more cautious. The value of homes will drop in some markets, the number of home sales will decrease, and the number of mortgage foreclosures will rise in the next few years. "

Our Advice in September 2008:

The sub-prime mortgage debacle is only the most visible part of the housing bubble that ensnared not just investment bankers and hedge funds but more-conservative mortgage investors like banks, Fannie Mae, and Freddie Mac. Rising home prices protected against a multitude of management sins because any foreclosed properties could be resold, often at a profit. Now falling home prices have exposed the many problems just under the surface.

And here we get to a bigger problem than just rich Wall Street firms going bust:

While home prices were going up, home owners spent all the credit they could get, to buy homes, to buy cars, to buy consumer goods. Now they are in debt to the roots of their hair and their spending will be sharply lower for quite a while.

Because consumers can no longer borrow to buy stuff, there will be no quick fix for the economy: no quick recovery in home prices, no turn-around for Detroit from lower gas prices, no jump start to the economy from government stimulus plans. Consumer debt peaked in September 2007. In previous cycles the adjustment period was at least two years, and this time the problem is bigger. Don’t look for good economic growth until mid-2010.

Our Advice in October 2008:

Efforts to prop up the financial sector or the big car companies will make no difference to the economy as a whole. Banks, investment banks, insurance companies, the short-term money markets, are sources of cash for companies that make things and for consumers that buy things. Right now, consumers are not buying things, nor should they, because they no longer can afford to. So it doesn't matter if the companies that make goods have enough cash, and it doesn't matter if the financial companies that supply cash are willing and able to.

There is no credit crisis, there is a consumer spending crisis. And there is no solution except an extended period of lower consumer spending, no matter how hysterical our national financiers and regulators get.