How Bad was 2008, really?

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Wakefield1
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Re: How Bad was 2008, really?

Postby Wakefield1 » Tue Jan 10, 2017 10:37 pm

Some kind of bailout (injection of money/liquidity into the economy and credit system) was most likely necessary if we were to avoid economic reversion to the Stone Age. But it appears that the culprits who profited as they manufactured/ brought us into the crisis also profited from the bailout and I don't think that was a very efficient use of the money. Had to get their bonuses?
President Eisenhower's warnings about the "military-industrial complex" -if he were around today he might be warning about another kind of complex

avalpert
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Re: How Bad was 2008, really?

Postby avalpert » Tue Jan 10, 2017 10:46 pm

munemaker wrote:
avalpert wrote:
munemaker wrote:
avalpert wrote:
munemaker wrote:
If you remember, the House voted against the bailout before they voted for it.

http://money.cnn.com/2008/09/29/news/economy/bailout/

Yes, even ideological politicians can eventually come to their senses in the face of imminent disasters - like I said up thread, no guarantee they will have the political courage to do so the next time.


I don't think they "came to their senses." I think they were scared to death by Bernake and Paulson. They didn't have the intestinal fortitude to stand their ground. But what would you expect?

Your right, they needed Bernake and Paulson to scare them to their senses - I wouldn't have expected any more.

I'm going to leave this discussion here because it really is barely on the edge of what is permitted here (not sure on which side of that edge). But really, all I can say to someone who refuses to appreciate what was required of the adults in the room that moment is you have no idea what the risk really was - this isn't a knock, most people didn't have visibility or understanding of the financial entanglements and string of dominoes that were about to fall and the impact it would have on the financial system and didn't need to - and appeals to the 'free market would have worked it out' are rooted in a naive caricature of economics that should be abandoned before the end of any good first semester course.


Just for the record, I have a MBA with a concentration in finance, so I have "visibility and understanding of the financial entanglements." Maybe there can be different valid views on the subject.


I'm sorry, but if you honestly believe:

People would continue to buy insurance, just not that insurance. People would still put money in banks, just not those banks


Then you do not.

There certainly can be difference valid views, and like I said earlier counterfactuals are fun, and it is possible that every insider in those discussions (which I happen to have been privy to) were mistaken and overestimated their own exposure to collapse if all untangled but the complete lack of a dissenting opinion among the insiders and experts who had as much visibility as was possible but the burden on supporting that view here is very high and I haven't seen anyone make a serious an attempt at it.

avalpert
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Re: How Bad was 2008, really?

Postby avalpert » Tue Jan 10, 2017 10:52 pm

Wakefield1 wrote:Some kind of bailout (injection of money/liquidity into the economy and credit system) was most likely necessary if we were to avoid economic reversion to the Stone Age. But it appears that the culprits who profited as they manufactured/ brought us into the crisis also profited from the bailout and I don't think that was a very efficient use of the money. Had to get their bonuses?
President Eisenhower's warnings about the "military-industrial complex" -if he were around today he might be warning about another kind of complex

This is certainly true. And in an ideal world certain individuals would have ended up broke instead of positioned to be saved and their assets would have been used to provide a cushion for the millions pushed to the brink by their mistakes.

munemaker
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Re: How Bad was 2008, really?

Postby munemaker » Tue Jan 10, 2017 10:56 pm

avalpert wrote:
munemaker wrote:
avalpert wrote:
munemaker wrote:
avalpert wrote:Yes, even ideological politicians can eventually come to their senses in the face of imminent disasters - like I said up thread, no guarantee they will have the political courage to do so the next time.


I don't think they "came to their senses." I think they were scared to death by Bernake and Paulson. They didn't have the intestinal fortitude to stand their ground. But what would you expect?

Your right, they needed Bernake and Paulson to scare them to their senses - I wouldn't have expected any more.

I'm going to leave this discussion here because it really is barely on the edge of what is permitted here (not sure on which side of that edge). But really, all I can say to someone who refuses to appreciate what was required of the adults in the room that moment is you have no idea what the risk really was - this isn't a knock, most people didn't have visibility or understanding of the financial entanglements and string of dominoes that were about to fall and the impact it would have on the financial system and didn't need to - and appeals to the 'free market would have worked it out' are rooted in a naive caricature of economics that should be abandoned before the end of any good first semester course.


Just for the record, I have a MBA with a concentration in finance, so I have "visibility and understanding of the financial entanglements." Maybe there can be different valid views on the subject.


I'm sorry, but if you honestly believe:

People would continue to buy insurance, just not that insurance. People would still put money in banks, just not those banks


Then you do not.

There certainly can be difference valid views, and like I said earlier counterfactuals are fun, and it is possible that every insider in those discussions (which I happen to have been privy to) were mistaken and overestimated their own exposure to collapse if all untangled but the complete lack of a dissenting opinion among the insiders and experts who had as much visibility as was possible but the burden on supporting that view here is very high and I haven't seen anyone make a serious an attempt at it.


Well, I guess we are just going to have to disagree on this one then!

MrKnight
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Re: How Bad was 2008, really?

Postby MrKnight » Tue Jan 10, 2017 11:09 pm

avalpert wrote:
munemaker wrote:
avalpert wrote:
munemaker wrote:
avalpert wrote:Yes, even ideological politicians can eventually come to their senses in the face of imminent disasters - like I said up thread, no guarantee they will have the political courage to do so the next time.


I don't think they "came to their senses." I think they were scared to death by Bernake and Paulson. They didn't have the intestinal fortitude to stand their ground. But what would you expect?

Your right, they needed Bernake and Paulson to scare them to their senses - I wouldn't have expected any more.

I'm going to leave this discussion here because it really is barely on the edge of what is permitted here (not sure on which side of that edge). But really, all I can say to someone who refuses to appreciate what was required of the adults in the room that moment is you have no idea what the risk really was - this isn't a knock, most people didn't have visibility or understanding of the financial entanglements and string of dominoes that were about to fall and the impact it would have on the financial system and didn't need to - and appeals to the 'free market would have worked it out' are rooted in a naive caricature of economics that should be abandoned before the end of any good first semester course.


Just for the record, I have a MBA with a concentration in finance, so I have "visibility and understanding of the financial entanglements." Maybe there can be different valid views on the subject.


I'm sorry, but if you honestly believe:

People would continue to buy insurance, just not that insurance. People would still put money in banks, just not those banks


Then you do not.

There certainly can be difference valid views, and like I said earlier counterfactuals are fun, and it is possible that every insider in those discussions (which I happen to have been privy to) were mistaken and overestimated their own exposure to collapse if all untangled but the complete lack of a dissenting opinion among the insiders and experts who had as much visibility as was possible but the burden on supporting that view here is very high and I haven't seen anyone make a serious an attempt at it.


Agreed.

Such a espouse belief of just allowing the 2008 financial crisis and financial institutions and companies to collapse demonstrates a fundamental break in the understanding of the credit crisis.

The economy was on he verge of global collapse. It was not a simple matter of a few companies going under, it was a reset button on the global economy... that's the only point that can be argued, whether we should have permitted the global economy to collapse... and the great depression demonstrated that a quick recovery is not guaranteed.

munemaker
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Re: How Bad was 2008, really?

Postby munemaker » Tue Jan 10, 2017 11:11 pm

This was a classic from back in the day:

https://www.youtube.com/watch?v=V9EbPxTm5_s

rattlenap
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Re: How Bad was 2008, really?

Postby rattlenap » Tue Jan 10, 2017 11:16 pm

LiterallyIronic wrote:I had just graduated from college in December 2008 with a BS in Business Management. Couldn't find a job, except working in a call center for $9.50/hour. I had previously been making $11.50/hour in a student tech support position. I didn't lose any money (on paper or otherwise) like most people on this forum, but I also was barely making ends meet and had nothing to invest so I missed the run-up that occurred over the next couple of years.

Be patient! There will be another one in your lifetime. Not sure when and to what degree, but it will happen.

kjvmartin
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Re: How Bad was 2008, really?

Postby kjvmartin » Wed Jan 11, 2017 12:01 am

My very anti-stock market and conservative relative starting buying rental properties like crazy. I think he sold some of his $300 gold and $8 silver he was hoarding. HELOC, whatever he could to finance it and ended up with about 30 or 40 of them over the course of a few years. Who would have thought houses for $5k-$25k all over the place? Rents have skyrocketed, and so has the value of the properties.

Did I mention he retired a few years ago?

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Pajamas
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Re: How Bad was 2008, really?

Postby Pajamas » Wed Jan 11, 2017 12:24 am

munemaker wrote:This was a classic from back in the day:

https://www.youtube.com/watch?v=V9EbPxTm5_s


This is a good follow-up to that video!

https://youtu.be/7XY3_IuCRYA?t=113

Big Dog
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Re: How Bad was 2008, really?

Postby Big Dog » Wed Jan 11, 2017 12:53 am

Fortunately I was not paying attention. I was 80% in equity and only woke up in 2010 when the worse was over.


I was paying attention, but did not buy all the gloom and doom. Perhaps I was just naive? But I was 100% equity, and had been since my first investment in Vanguard's S&P 500 in the 80's. The late 90's bubble came and went, and I assumed that the '08 downturn would as well. (Maybe even blind as well as naive? :oops:

Crushtheturtle
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Re: How Bad was 2008, really?

Postby Crushtheturtle » Wed Jan 11, 2017 3:03 am

kjvmartin wrote:My very anti-stock market and conservative relative starting buying rental properties like crazy. I think he sold some of his $300 gold and $8 silver he was hoarding. HELOC, whatever he could to finance it and ended up with about 30 or 40 of them over the course of a few years. Who would have thought houses for $5k-$25k all over the place? Rents have skyrocketed, and so has the value of the properties.

Did I mention he retired a few years ago?



Sounds like a smart cookie. And a good lesson for those of us who, while believing in the strength of equity markets going forward, should consider holding capital aside in order to take advantage of future opportunities in a similar fashion.

Dottie57
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Re: How Bad was 2008, really?

Postby Dottie57 » Wed Jan 11, 2017 8:30 am

munemaker wrote:
Dottie57 wrote:
MrKnight wrote:
InvestorNewb wrote:
MrKnight wrote:The implications for having graduated into it the financial crisis lasted for years as each future employer based my new salary on my prior salary.

Could you not "inflate" your previous salary so that you could at least earn a fair wage at your new job? Or did they somehow verify that information?


I probably could get away doing that, yes, but I was always truthful when asked.

I have never seen it personally but I have been told that some jobs will verify your prior salary. I imagine these companies are few and far between however.



How wpold it be verified? I would hope an employer would not give out the info.


I know a young person who earns a very high salary for his age. When he changed jobs recently, after he had turned in his notice, his "new" employer requested his most recent W-2 to confirm his compensation. Fortunately he had not embellished. This was in the IT field. We didn't know if this was their standard policy, or thought his reported compensation was on the high side and called him on it.


Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.

grettman
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Re: How Bad was 2008, really?

Postby grettman » Wed Jan 11, 2017 8:41 am

Crushtheturtle wrote:
kjvmartin wrote:My very anti-stock market and conservative relative starting buying rental properties like crazy. I think he sold some of his $300 gold and $8 silver he was hoarding. HELOC, whatever he could to finance it and ended up with about 30 or 40 of them over the course of a few years. Who would have thought houses for $5k-$25k all over the place? Rents have skyrocketed, and so has the value of the properties.

Did I mention he retired a few years ago?



Sounds like a smart cookie. And a good lesson for those of us who, while believing in the strength of equity markets going forward, should consider holding capital aside in order to take advantage of future opportunities in a similar fashion.


Yep. Even though it is hard to see safe investments/savings put a drag on your returns, liquidity is king in significantly down markets. Sometimes it is smart NOT to put every dollar to work for you immediately ...some of them have to be benchwarmers ready and able to jump in at a moments notice!

MrKnight
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Re: How Bad was 2008, really?

Postby MrKnight » Wed Jan 11, 2017 9:11 am

Grt2bOutdoors wrote:
Dottie57 wrote:
MrKnight wrote:
InvestorNewb wrote:
MrKnight wrote:The implications for having graduated into it the financial crisis lasted for years as each future employer based my new salary on my prior salary.

Could you not "inflate" your previous salary so that you could at least earn a fair wage at your new job? Or did they somehow verify that information?


I probably could get away doing that, yes, but I was always truthful when asked.

I have never seen it personally but I have been told that some jobs will verify your prior salary. I imagine these companies are few and far between however.



How wpold it be verified? I would hope an employer would not give out the info.


Insurance companies used to ask for a copy of your last W-2 or a copy of your last paycheck stub. It was a well-known thing their recruiters would ask for before they extended an interview or an offer. Not sure about it now, but they are notoriously frugal.


I actually work for an insurance company, and my colleague who said his prior employer did this (verify wages) was a well known insurance company. I didn't want to explicitly mention company names.

Wakefield1
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Re: How Bad was 2008, really?

Postby Wakefield1 » Wed Jan 11, 2017 10:25 am

kjvmartin wrote:My very anti-stock market and conservative relative starting buying rental properties like crazy. I think he sold some of his $300 gold and $8 silver he was hoarding. HELOC, whatever he could to finance it and ended up with about 30 or 40 of them over the course of a few years. Who would have thought houses for $5k-$25k all over the place? Rents have skyrocketed, and so has the value of the properties.

Did I mention he retired a few years ago?

Some people seem to be very skillful at doing Real Estate or becoming landlords. (Make huge amounts of money off of tenants or by flipping)
Others who don't do so well might get problem tenants that destroy the houses and won't leave,pay their rent unless forcibly evicted and then they might delay that by going to Court-or those landlords might end up spending most of their "profit" on Second Party tenant management companies-
I don't feel confident to touch real estate unless I can be there living in it-
landlord house near where I live is being run down,sort of allowed to deteriorate in anticipation of teardown or something-I think that landlord is kind of freeloading-refused to sell to a couple of nice families that lived in there serially

munemaker
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Re: How Bad was 2008, really?

Postby munemaker » Wed Jan 11, 2017 11:22 am

Dottie57 wrote:

Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.


I am not sure if it is germane or not. Most companies seem to use prior salary as a baseline so they know what to offer an applicant. On the other hand, I think I read a couple states are prohibiting this practice, under the premise that it discriminates against women. In the case of this particular young person, they offered him a lot of money based on his prior compensation and they wanted to make sure that basis was validated. Why wouldn't he take a high paying job, just because they asked for validation? On the other hand, if he would have misrepresented his prior compensation, he would have been in big trouble, as he had already turned his notice in at the prior employer. I can see both sides of this.

If you don't want to work for companies that ask you your salary history, your list of potential employers would be pretty limited, wouldn't it?

MrKnight
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Re: How Bad was 2008, really?

Postby MrKnight » Wed Jan 11, 2017 12:52 pm

munemaker wrote:
Dottie57 wrote:

Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.


I am not sure if it is germane or not. Most companies seem to use prior salary as a baseline so they know what to offer an applicant. On the other hand, I think I read a couple states are prohibiting this practice, under the premise that it discriminates against women. In the case of this particular young person, they offered him a lot of money based on his prior compensation and they wanted to make sure that basis was validated. Why wouldn't he take a high paying job, just because they asked for validation? On the other hand, if he would have misrepresented his prior compensation, he would have been in big trouble, as he had already turned his notice in at the prior employer. I can see both sides of this.

If you don't want to work for companies that ask you your salary history, your list of potential employers would be pretty limited, wouldn't it?


I can see it both ways too. Awareness of prior job salary offers a sense of the fair market salary rate to the company. If the person is underpaid, they will eventually accept higher paid offers... but there is a employer culture and suspicion that the employee has to surmount (try to jump prior to 2 years and you are labeled a hopper, and employers loathe hearing that you are leaving for the money), which limits the ability of a candidate to successfully job-hop to get to their fair market salary rate. It took me 7 years to recover from an initial low-ball salary.

Dottie57
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Re: How Bad was 2008, really?

Postby Dottie57 » Wed Jan 11, 2017 1:28 pm

munemaker wrote:
Dottie57 wrote:

Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.


I am not sure if it is germane or not. Most companies seem to use prior salary as a baseline so they know what to offer an applicant. On the other hand, I think I read a couple states are prohibiting this practice, under the premise that it discriminates against women. In the case of this particular young person, they offered him a lot of money based on his prior compensation and they wanted to make sure that basis was validated. Why wouldn't he take a high paying job, just because they asked for validation? On the other hand, if he would have misrepresented his prior compensation, he would have been in big trouble, as he had already turned his notice in at the prior employer. I can see both sides of this.

If you don't want to work for companies that ask you your salary history, your list of potential employers would be pretty limited, wouldn't it?


Yes, probably. But there should be a good argument to base salary on what former responsibilities were and not on former salary.

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ray.james
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Re: How Bad was 2008, really?

Postby ray.james » Wed Jan 11, 2017 1:54 pm

avalpert wrote:
Wakefield1 wrote:Some kind of bailout (injection of money/liquidity into the economy and credit system) was most likely necessary if we were to avoid economic reversion to the Stone Age. But it appears that the culprits who profited as they manufactured/ brought us into the crisis also profited from the bailout and I don't think that was a very efficient use of the money. Had to get their bonuses?
President Eisenhower's warnings about the "military-industrial complex" -if he were around today he might be warning about another kind of complex

This is certainly true. And in an ideal world certain individuals would have ended up broke instead of positioned to be saved and their assets would have been used to provide a cushion for the millions pushed to the brink by their mistakes.


I recommend to checkout this video:
https://www.youtube.com/watch?v=pD8viQ_DhS4

Paul Kanjorski trying to explain a radio caller angry about the bailout on what exactly happened. While take it with a grain of salt, I think he is saying what happened from congress point of view. Timothy Geithner book also confirms some of the accounts.

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.


I personally do not know what they did was either right or the best solution. I do also share your feeling on how it ended in the end. But I do realize had treasury not done it, US and a number of other countries would be in Greece situation where everyone is standing at ATM to withdraw $200 a week.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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3CT_Paddler
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Re: How Bad was 2008, really?

Postby 3CT_Paddler » Wed Jan 11, 2017 2:18 pm

The fear and uncertainty you feel from a real financial panic cannot be sufficiently communicated with a couple sentences. I can tell you about the best apple pie ever, but until you experience it, it won't hit home for you.

2008 was less about the losses in your portfolio (unless you are holding mostly stocks and about to retire), than it was about job loss or the impacts of little to no company profits on your personal bottom line. There is no cash for saving if the primary earner is out of a job. In some fields and parts of the country, the fallout was more limited. If you did anything that had a tie to construction, it was a severe event that you felt. There was talk several years in about this being a "new normal" and how unemployment may not go below 6% for another 20 years. It felt like it might be true.

Hopefully we are not repeating the same mistakes again that got us into this mess.

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Kenkat
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Re: How Bad was 2008, really?

Postby Kenkat » Wed Jan 11, 2017 2:40 pm

I posted in the original Sheepdog thread, so I won't repeat myself here, but it was really bad. It's not just the market drop, it's everything else. Just a few personal observations of that time:

A neighbor was a recently retired Executive VP of a large regional bank (top 20 in size). He was at a level where he was one of the executives in the Annual Shareholder proxy. Somewhat after the primary crisis ended, he mentioned that his contacts at the bank said they were DONE without TARP. Just a few days away from bankruptcy. Even with TARP, they were forced to sell assets at prices they never would have sold for under normal circumstances. The bank's stock in still less than a third of its pre-crash value.

A good friend of mine is a local home builder. He runs his business very conservatively, with little debt. His business disappeared after the crash; he basically all but shut down the business and took a job as a surveyor for almost two years before he finally restatrted his home building business. One of the larger builders in town went completely under and has yet to recover.

The company I worked for was seriously considering selling a significant portion of a business unit that was dependent on stock market security prices. By selling, they practically meant jettisoning it at any price but (luckily, in retrospect) no one wanted and so it was retained. Luckily the market recovered before it pulled the whole company down with it. It is now growing nicely again.

I did ultimately rebalance, but i did it over a year rather than all at once. I just couldn't bring myself to do it all at once given the circumstances. It really felt like there was a chance it could go to zero.

Easy Rhino
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Re: How Bad was 2008, really?

Postby Easy Rhino » Wed Jan 11, 2017 3:10 pm

Depends on how "insulated" you were.

In 2001, I was only an adult for a couple of years, while I did lose my job a bit later (03?) I didn't have much of a nest egg at that point.

By 2008, I had more money saved up, and the losses were amazing, as well as the speculation on what financial institution would collapse yet. but my employment was pretty stable (did have a small pay cut). oh and I didn't own a home. I was able to stay the course and rebalance (frequently... so much rebalancing!)

The perfect storm of badness would be something like:

1) near retirement, with nest egg at risk
2) underwater home
3) job loss
4) supporting a family

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burt
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Re: How Bad was 2008, really?

Postby burt » Wed Jan 11, 2017 4:55 pm

Dottie57 wrote:
munemaker wrote:
Dottie57 wrote:

Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.


I am not sure if it is germane or not. Most companies seem to use prior salary as a baseline so they know what to offer an applicant. On the other hand, I think I read a couple states are prohibiting this practice, under the premise that it discriminates against women. In the case of this particular young person, they offered him a lot of money based on his prior compensation and they wanted to make sure that basis was validated. Why wouldn't he take a high paying job, just because they asked for validation? On the other hand, if he would have misrepresented his prior compensation, he would have been in big trouble, as he had already turned his notice in at the prior employer. I can see both sides of this.

If you don't want to work for companies that ask you your salary history, your list of potential employers would be pretty limited, wouldn't it?


Yes, probably. But there should be a good argument to base salary on what former responsibilities were and not on former salary.


Seems to me that the "free market system" would base salaries on supply and demand. The price of bananas 1 month ago has no bearing on the price of bananas today. Everybody thinks they are special.

burt

kjvmartin
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Re: How Bad was 2008, really?

Postby kjvmartin » Wed Jan 11, 2017 5:26 pm

Wakefield1 wrote:
kjvmartin wrote:My very anti-stock market and conservative relative starting buying rental properties like crazy. I think he sold some of his $300 gold and $8 silver he was hoarding. HELOC, whatever he could to finance it and ended up with about 30 or 40 of them over the course of a few years. Who would have thought houses for $5k-$25k all over the place? Rents have skyrocketed, and so has the value of the properties.

Did I mention he retired a few years ago?

Some people seem to be very skillful at doing Real Estate or becoming landlords. (Make huge amounts of money off of tenants or by flipping)
Others who don't do so well might get problem tenants that destroy the houses and won't leave,pay their rent unless forcibly evicted and then they might delay that by going to Court-or those landlords might end up spending most of their "profit" on Second Party tenant management companies-
I don't feel confident to touch real estate unless I can be there living in it-
landlord house near where I live is being run down,sort of allowed to deteriorate in anticipation of teardown or something-I think that landlord is kind of freeloading-refused to sell to a couple of nice families that lived in there serially


He's in a partnership with a guy who does the grunt work. He collects the rent and deals with the administrative end. It's a 50/50 split on rent collecting, but I think my relative had to pony up more of the up front principal. It's quite rare for them to have a negative experience, as I understand, most/all of their rent arrives directly from Uncle Sam in the form of a section 8 payments.

Stormbringer
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Re: How Bad was 2008, really?

Postby Stormbringer » Wed Jan 11, 2017 8:19 pm

In 2008, we were staring into the abyss. It could have been the Great Depression 2.0. It took massive government intervention to stop the dominoes from falling. I know six people, including two friends, who lost everything including their houses. Another friend lost his job and was on the brink of bankruptcy. It was bad, and it could have been much, much worse.

newbie001
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Re: How Bad was 2008, really?

Postby newbie001 » Wed Jan 11, 2017 9:33 pm

It was incredibly scary- definitely affected me permanently.

I distinctly remember making generous contributions to my 401k every other week in the fall of 2008 and seeing my balance decline each month. As many have pointed out in this thread, all the cheery talk of "stocks being on sale" means nothing when a steep stock market decline occurs in conjunction with a steep decline in job security. Buying stocks cheaply isn't really an option when you have to use your remaining money to buy groceries.

As things turned out, I was laid off from my job in 2009 as a result of the recession. I was working at a large law firm at the time (as a 1st year associate). A lot of big law firms have a model in which a big client seeking to execute a massive corporate transaction is brought in and all of the associates then have all the billable hours they can handle for the next few months. In December 2008, in the span of 10 days, we had 4 deals called off because clients couldn't get financing. Those four deals would have meant tens of thousands of billable hours for the associates. But they collapsed and as a result I and many co-workers were laid off because there wasn't enough work to go around. And these weren't fat cats either. A lot of the people who got laid off were young associates with massive student debt and families to support. And after losing their jobs, they find out that no law firm in the country was hiring.

And it wasn't just law- at the time it seemed like every industry in America, except maybe bankruptcy attorneys and pawnshops. When fear takes hold and people start hoarding cash, the vicious cycle begins and watching the daily headlines becomes a grim game of "how bad can things get?"

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Re: How Bad was 2008, really?

Postby munemaker » Wed Jan 11, 2017 9:57 pm

Dottie57 wrote:
munemaker wrote:
Dottie57 wrote:

Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.


I am not sure if it is germane or not. Most companies seem to use prior salary as a baseline so they know what to offer an applicant. On the other hand, I think I read a couple states are prohibiting this practice, under the premise that it discriminates against women. In the case of this particular young person, they offered him a lot of money based on his prior compensation and they wanted to make sure that basis was validated. Why wouldn't he take a high paying job, just because they asked for validation? On the other hand, if he would have misrepresented his prior compensation, he would have been in big trouble, as he had already turned his notice in at the prior employer. I can see both sides of this.

If you don't want to work for companies that ask you your salary history, your list of potential employers would be pretty limited, wouldn't it?


Yes, probably. But there should be a good argument to base salary on what former responsibilities were and not on former salary.


Different people can have the same responsibilities but vary greatly in their ability to execute.

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Re: How Bad was 2008, really?

Postby carolinaman » Thu Jan 12, 2017 8:19 am

When things got really bad in the Fall of 2008, it was not immediately obvious what was causing such a precipitous decline in the markets. I understood that sub prime mortgages were a big problem but how that was tied together with credit swaps, AIG, derivatives,excessive leverage was not clear (at least to me) for months. That was the scariest part to me, that the markets were in shambles but not having a complete understanding of why.

I really thought we were possibly watching the collapse of our global financial system, and still believe we came close to that, I have experienced other bear markets, 1987, dot.com bubble, etc. and none of those bears came anywhere near 2008.

I used to read Bill Gross's column (my mistake) and in early 2009 he was saying that the S&P500 could drop another 50%. He was the "bond king" and had a lot of credibility with me at that time. That was scary for me as I had planned to retire at the end of 2008. I delayed retirement until 2010 which gave me time to recoup some of my losses.

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Re: How Bad was 2008, really?

Postby Xyz214 » Thu Jan 12, 2017 8:48 am

In case this hasn't been mentioned, seeing people getting laid off left and right made me really nervous about my job.

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Re: How Bad was 2008, really?

Postby burt » Thu Jan 12, 2017 4:59 pm

Xyz214 wrote:In case this hasn't been mentioned, seeing people getting laid off left and right made me really nervous about my job.


+1 x 10

25% of my building was layed off. About 125 people. 125 families were impacted including children and spouses. Very, very sad.
Many are now working... but far from being recovered. Surviving v.s. thriving.

burt

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Re: How Bad was 2008, really?

Postby sperry8 » Thu Jan 12, 2017 7:43 pm

SpartanBull wrote:but for me the real fear would be the fear of stocks going down for like...decades. What is so scary about a 2 year blip?


At the time - no one knew it was a "blip". And it took longer than 2 years to come back to even (more like 4). Surely not terribly long in hindsight, but buyers of equities were scarce and prices kept dropping. Sellers were aplenty and were selling at lower and ever lower prices. Equities were down 50%+ (from the highs) and the media, even at the lows, was calling for another 33% drop. Fear was everywhere. No one knew if it would ever come back up or how long. Lehman Brothers, a company that was founded in 1850 failed. Read that again... 1850. It survived WWI, the Great Depression, WWII, etc. And it failed. Warren Buffett was the lender of last resort for many venerable companies including GE, Goldman Sachs, and Bank of America. So much so that in addition to stock, he was getting 8-10% interest rates and/or dividends in perpetuity on money lent in some cases.

Even the Great Depression resulted in one getting back to even (assuming they reinvested dividends) in 11 years. Hindsight makes it all look easy. But living through it and thinking Japan's 25 yr + "L" is happening here is a stressful thing.
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Re: How Bad was 2008, really?

Postby AllieTB1323 » Thu Jan 12, 2017 9:43 pm

kenschmidt wrote:I posted in the original Sheepdog thread, so I won't repeat myself here, but it was really bad. It's not just the market drop, it's everything else. Just a few personal observations of that time:

A neighbor was a recently retired Executive VP of a large regional bank (top 20 in size). He was at a level where he was one of the executives in the Annual Shareholder proxy. Somewhat after the primary crisis ended, he mentioned that his contacts at the bank said they were DONE without TARP. Just a few days away from bankruptcy. Even with TARP, they were forced to sell assets at prices they never would have sold for under normal circumstances. The bank's stock in still less than a third of its pre-crash value.

A good friend of mine is a local home builder. He runs his business very conservatively, with little debt. His business disappeared after the crash; he basically all but shut down the business and took a job as a surveyor for almost two years before he finally restatrted his home building business. One of the larger builders in town went completely under and has yet to recover.

The company I worked for was seriously considering selling a significant portion of a business unit that was dependent on stock market security prices. By selling, they practically meant jettisoning it at any price but (luckily, in retrospect) no one wanted and so it was retained. Luckily the market recovered before it pulled the whole company down with it. It is now growing nicely again.

I did ultimately rebalance, but i did it over a year rather than all at once. I just couldn't bring myself to do it all at once given the circumstances. It really felt like there was a chance it could go to zero.


Our business was doing well but one Sunday, after Mass, our business banker of twenty years called saying she was changing employers. Since she was a branch manager we were shocked. She made it clear we should protect our company. We moved our accounts and money market funds out of her former branch days before the feds showed up and closed the operation. Seems the bank had made far too many construction loans which were defaulting.

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Re: How Bad was 2008, really?

Postby Valuethinker » Fri Jan 13, 2017 8:54 am

kenschmidt wrote:I posted in the original Sheepdog thread, so I won't repeat myself here, but it was really bad. It's not just the market drop, it's everything else. Just a few personal observations of that time:

A neighbor was a recently retired Executive VP of a large regional bank (top 20 in size). He was at a level where he was one of the executives in the Annual Shareholder proxy. Somewhat after the primary crisis ended, he mentioned that his contacts at the bank said they were DONE without TARP. Just a few days away from bankruptcy. Even with TARP, they were forced to sell assets at prices they never would have sold for under normal circumstances. The bank's stock in still less than a third of its pre-crash value.

A good friend of mine is a local home builder. He runs his business very conservatively, with little debt. His business disappeared after the crash; he basically all but shut down the business and took a job as a surveyor for almost two years before he finally restatrted his home building business. One of the larger builders in town went completely under and has yet to recover.

The company I worked for was seriously considering selling a significant portion of a business unit that was dependent on stock market security prices. By selling, they practically meant jettisoning it at any price but (luckily, in retrospect) no one wanted and so it was retained. Luckily the market recovered before it pulled the whole company down with it. It is now growing nicely again.

I did ultimately rebalance, but i did it over a year rather than all at once. I just couldn't bring myself to do it all at once given the circumstances. It really felt like there was a chance it could go to zero.


Good remembrances, thank you!

I think if you weren't in contact with finance and business people, it was hard to understand just how bad it was.

It was only afterwards when my father's stockbroker, who works for one of the world's 20 largest banks by assets (and which was not bailed out) said "in October, we didn't know if we'd still be around by Christmas".

Watching your portfolio go down day in day out proved to be too painful. You just had to shut it off. I had holdings which were down 70-80%.

I had also made quite a bit of investment into Emerging Markets and Pacific Basin in August 2008! :oops:

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Re: How Bad was 2008, really?

Postby Valuethinker » Fri Jan 13, 2017 9:03 am

burt wrote:
Dottie57 wrote:
munemaker wrote:
Dottie57 wrote:

Tell you the truth, I am not sure I would want to work for the company. Prior compensation is not germaine to present.


I am not sure if it is germane or not. Most companies seem to use prior salary as a baseline so they know what to offer an applicant. On the other hand, I think I read a couple states are prohibiting this practice, under the premise that it discriminates against women. In the case of this particular young person, they offered him a lot of money based on his prior compensation and they wanted to make sure that basis was validated. Why wouldn't he take a high paying job, just because they asked for validation? On the other hand, if he would have misrepresented his prior compensation, he would have been in big trouble, as he had already turned his notice in at the prior employer. I can see both sides of this.

If you don't want to work for companies that ask you your salary history, your list of potential employers would be pretty limited, wouldn't it?


Yes, probably. But there should be a good argument to base salary on what former responsibilities were and not on former salary.


Seems to me that the "free market system" would base salaries on supply and demand. The price of bananas 1 month ago has no bearing on the price of bananas today. Everybody thinks they are special.

burt


That's the Econ 100 view. But if you go on and study more economics, they teach you all about market imperfections and how they affect things.

Labor Markets are particularly bad this way:

- the potential employer doesn't know how good you are. So they look for "signals". Like how much were you paid at your last job? Where you let go or are you looking for a better role? Does your face "fit" the company we have already?

A company will leave a slot unfilled rather than cut the pay on that job, because they worry they will be hiring an ill-suited candidate and/or it will disrupt pay scales internally.

George Akerlof and Robert Shiller have written about this. There are other economics books (even Microeconomics for Dummies from memory, covers this. So does the series of graphic novels Econocomix ).

Quite a few Nobel Prizes in work around asymmetric information. In particular Michael Spence on the value of prestige education (it's about signalling, not about being better educated), George Akerlof ("Market for Lemons" about buying used cars, which are similar in some ways to hiring people) and Chris Pissarides ("Search Theory of Unemployment").

If you surf the Nobel Prize in economics winners website you can find non technical descriptions for these 3 individuals as to why they won the Prize.

BTW in the real world you will find age discrimination is quite real. Companies do not want workers over 50: generally they worry about higher absences/ healthcare bills (probably true), inflexibility to new ways of working and corporate culture (maybe true), less commitment to doing the extra hours (probably true), how the company "looks" to outsiders and other employees (not fair, but it's there).

Also middle managers generally don't like to have people 10-20 years older than them reporting to them. See them as potential obstacles.

Of course industries differ. Tech and finance tend to have young work forces, so does consulting. Utilities, education, say may have many older employees.

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Re: How Bad was 2008, really?

Postby Valuethinker » Fri Jan 13, 2017 9:05 am

carolinaman wrote:When things got really bad in the Fall of 2008, it was not immediately obvious what was causing such a precipitous decline in the markets. I understood that sub prime mortgages were a big problem but how that was tied together with credit swaps, AIG, derivatives,excessive leverage was not clear (at least to me) for months. That was the scariest part to me, that the markets were in shambles but not having a complete understanding of why.

I really thought we were possibly watching the collapse of our global financial system, and still believe we came close to that, I have experienced other bear markets, 1987, dot.com bubble, etc. and none of those bears came anywhere near 2008.

I used to read Bill Gross's column (my mistake) and in early 2009 he was saying that the S&P500 could drop another 50%. He was the "bond king" and had a lot of credibility with me at that time. That was scary for me as I had planned to retire at the end of 2008. I delayed retirement until 2010 which gave me time to recoup some of my losses.


Yes this is a good description of what it felt like and what happened.

Thank you.

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tadamsmar
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Re: How Bad was 2008, really?

Postby tadamsmar » Fri Jan 13, 2017 8:11 pm

Some of us learned what "breaking the buck" meant. Some money market fund investments, one of the safest investments, actually lost money.

"On September 16, 2008, The Reserve Primary Fund broke the buck when its net asset value (NAV) fell to 97 cents per share. It was one of the first times in the history of investing that a retail money market fund had failed to maintain a $1 per share NAV."

http://www.investopedia.com/articles/ec ... ltdown.asp

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Re: How Bad was 2008, really?

Postby Silverado » Fri Jan 13, 2017 8:51 pm

The account balances dropping didn't bother me at all. I was about 15 years into career at the time. Some concern over the job, as I was part of the automotive sector. My wife did not like to see the red in her account balances, but I really wasn't concerned. I think the point of my projects at the time, and some personal athletic competitions kept me distracted. My job is more secure now, and I am confident the next drop won't have any impact.

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Re: How Bad was 2008, really?

Postby Candor » Fri Jan 13, 2017 9:49 pm

I was close to 100% in equities at the time and had weathered the dot.com bust with no problems but this one did seem different in real time. I held on and I give partial credit to Warren Buffett's NYT op-ed in October which helped me keep the faith.

http://www.nytimes.com/2008/10/17/opini ... ffett.html

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Re: How Bad was 2008, really?

Postby maniminto » Wed Jan 18, 2017 9:47 am

It was awful.
I was predominantly in aggressive & energy based ETFs & MFs and was in my early fifties. Taking a 50% shave in my taxable accounts and 40% shave in my qualified accounts was painful. I did not move to cash but it left an indelible impression on me. I started keeping my savings in cash accounts and to this day keep much more than recommended amount in cash.

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Re: How Bad was 2008, really?

Postby SQRT » Wed Jan 18, 2017 10:01 am

For me it was very bad. Retired in late 2006. Had large uncashed employee option position (big Canadian Bank) outstanding when the crises hit. Bought an expensive vacation property in 2007. My investable assets dropped by about 80% including the options which at one point were all underwater. Actual portfolio was leveraged by margin loans. Needless to say it was stressful. My retirement started to look a lot different than I had expected. Didn't do anything (what could I do at that point?), although I was almost certain the bank was solid
( it was). By the end of 2009 it all came back. Employer stock has since doubled.

Lesson learned. No debt only spend divs. Still 100% in equities although my pension would represent about 35% of investable assets.

I figure if I got through that, I can get through almost anything.

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Re: How Bad was 2008, really?

Postby NibbanaBanana » Fri Mar 10, 2017 2:05 pm

Pajamas wrote: GE is now a $276 billion market cap company but is still not worth nearly what it was before the crisis. I seriously considered buying it under $10 but did not because it looked like bankruptcy was more likely than not at that point.


I got it at $11 or $12 as I recall. Made some money on that one. Although in theory I'm fully onboard with the Boglehead philosophy, I just can't resist buying individual issues. It's simply fun. I'm a risk seeker. Nasty habit trading stocks. HeHe......

Edit: I think their financial division was a scam. But this is a company that produces diesel locomotives and jet turbine engines. That's saying something. Not easy and not a whole lot of folks that can do it.

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billyv
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Re: How Bad was 2008, really?

Postby billyv » Sat Mar 11, 2017 5:39 pm

While agreeing with many of the other posters here, I'd note that the two most recent recessions -- the 2000-2001 dot.com bust and the 2008-2009 subprime/banking crisis -- were really quite different.

The dot.com bust was a classic market "bubble." When it burst, people who had invested in over-hyped startups like pets.com lost money, but the impact was limited and the larger economy recovered quickly. The 2008 subprime meltdown was another, scarier beast entirely. That did affect the larger economy, mainly through plunging property values, which in turn threatened to sink the entire US banking system. To make matters worse, it turned out that many other countries had followed America down the subprime-debt rabbit hole. Europe, in particular, is still trying to dig its way out.

Bottom line: let's hope the next recession, when it comes, is more like the dot.com bust than the Great Recession.

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Re: How Bad was 2008, really?

Postby deltaneutral83 » Sat Mar 11, 2017 11:57 pm

Everyone has covered the emotions, and your employment was priority #1, but for numbers, the Dow moving 300-700 (seemingly every day) points Fall 2008 when it was well under 10K would mean 800-1800 point moves today. I have a feeling we were very close to that 6600 getting halved and us being at 6-7K today without Fed making timely moves. Bank stocks today still aren't close to what they were Oct 2007. A very, very tough lesson on leverage for those that bought homes with zero down or used significant leverage in their business. BUT, there's no way a 2008 could be planned. The buy gold, guns, and ammo commercials now days (while still humorous) have a totally different feel to them after 2008 as they did beforehand.

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Re: How Bad was 2008, really?

Postby bob_m10 » Sun Mar 12, 2017 12:38 am

Reading through this interesting thread and realize I don’t have a good understanding of how this works. Say you are 100% invested in the total Stock Market Index and to keep it simple we are not contributing anymore to this fund and this is the only fund we have. Then 2008 or any big crash comes along and your portfolio take a large hit from $100/share to $1/Share as an example. What has really happened? Is it just the share price that has dropped or do I lose shares as well? If I don’t lose shares, then potentially I can always recover if the share price rises back to $100? If that is the case, would it really make a difference if I had bonds in my portfolio or not? As long as I make it back to $100 does it matter how low the portfolio gets in between? I must be missing something. Thanks

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siamond
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Re: How Bad was 2008, really?

Postby siamond » Sun Mar 12, 2017 12:49 am

bob_m10 wrote:What has really happened? Is it just the share price that has dropped or do I lose shares as well?

Yes, it is 'just' the share price that dropped. So yes, it is entirely recoverable if you stay the course, and fact is it did recover in the past decade. But emotionally, this is pretty hard on your nerves to see the value of your portfolio plummet, and stay down for quite a while. Depending on your exact asset allocation, with a stock-heavy portfolio, you could have seen the value of your portfolio slashed by a third or even by a half. That is really hard to take, even if you're absolutely correct, same number of shares, hence a recoverable problem over time if... you don't panic in the mean time.

Personally, 2008/09 didn't faze me very much although I was 100% stocks by then. But I had a well-paying job and was feeling safe in this respect. I'm less sure I would manage such a drop that easily now that I am essentially retired.

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Re: How Bad was 2008, really?

Postby johnm160 » Sun Mar 12, 2017 1:27 am

I was in real estate sales in 2008 when the market went bust at 42 years old. For the first time in my life, since I started my paper route at 12 years old I was unemployed. I could not find a job and ate through my savings with still no job prospects in sight. The depression that set in because I could not support my family was terrible, I sat home searching for work while my wife became our only income I was broke and totally emasculated. Luckily I found a program for displaced workers so I could go back to school and prepare for a new career. I vowed to be recession proof so I enrolled in a nursing program so I would again be employe-able. I was out of work from 12/2008 to 7/2011. We had to move in with family after my unemployment benefits ran out so stay the course means very little when you can no longer put a roof over your head. Fast forward to today and I am still not making what I did at the height of my sales career but in the next downturn people will still get sick and still have major health issues that will require my skills. I just recently resumed contributing to my retirement plan and am working toward the large dollar amount I need to meet my retirement goals.

How bad was it? It is the worst thing I have experienced in my 50 years of life, it took me from living the care free life to relying on family to provide shelter for us.

It was BAD!!!

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Re: How Bad was 2008, really?

Postby Sandtrap » Sun Mar 12, 2017 8:41 am

In 2008 I was fully invested in Real Estate residential rental buildings, no debt, no leveraging. I did have to lower rents in some areas but for the most part rental demand increased. I felt no need to sell properties because of the drop in value just as one doesn't sell a producing orange grove because the current value of an orange tree has dropped (can also use value of chickens that still produce eggs every day. . . don't sell the chickens).
So 2008 was not at all bad from a full time career landlord, R/E development perspective.
OTOH, tenants and families I had known for decades had a horrible time. I did my best to lower rents and help with payment schedules, etc.
However, though I am not at all a finance "expert" as others here, from the perspective of one with an investment portfolio of funds, I can see how it would be uncomfortable indeed.

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Ged
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Re: How Bad was 2008, really?

Postby Ged » Sun Mar 12, 2017 8:50 am

SpartanBull wrote:What is so scary about a 2 year blip?


While you are in the 'blip' you don't know how long it's going to last. Bank failures, large companies failing, mortgages going underwater so you can't sell and no end in sight make it a pretty scary experience.

The financial effects are still with us too. My next door neighbor bought her house at the height of the bubble. She is still under water.

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Re: How Bad was 2008, really?

Postby MSU74 » Sun Mar 12, 2017 10:36 am

I was working for GM at the time in Michigan. I vividly recall the Ford CEO pleading in testimony to Congress for government financial support to his domestic competitors GM and Chrysler. His point was that if those competitors went under, Ford likely would have also because its network of key suppliers would have likely forced to close by bankruptcies at GM and Chrysler.

It would have been interesting, to say the least, to see what would have happened to the economy if GM, Chrysler, and Ford all declared bankruptcy. Those were certainly interesting times.

Like a lot of others, I did not have the fortitude to stay the course. Liquidated my equity holdings before things bottomed out, but then sensed the worst was over and gradually reinvested and enjoyed much of the upside that followed, albeit with a more conservative asset allocation of 70/30 that I feel better about now that I am retired.

It wasn't just a slowdown or recession. There was a sense that anything could happen. Definitely hard to keep your perspective back then.

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Re: How Bad was 2008, really?

Postby bob_m10 » Sun Mar 12, 2017 10:52 am

siamond wrote:
bob_m10 wrote:What has really happened? Is it just the share price that has dropped or do I lose shares as well?

Yes, it is 'just' the share price that dropped. So yes, it is entirely recoverable if you stay the course, and fact is it did recover in the past decade. But emotionally, this is pretty hard on your nerves to see the value of your portfolio plummet, and stay down for quite a while.


Is that because the total stock mutual fund is invested in many stocks? If you had a more targeted mutual fund with a smaller number of holdings, would it be possible to lose beyond recovery? I am thinking if companies go out of business stock price would drop to zero?
Last edited by bob_m10 on Sun Mar 12, 2017 11:46 am, edited 1 time in total.


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