Housing Doom

More news from the Dubai conference:

First off, soothing words from Professor Garicano’s boss:

“Don’t panic. …”

Mohamed then weighs in with an exercise in diffusing blame onto everyone except himself and his peers …

“There will be three main issues facing ordinary people. The first is the credit crunch, which means that there will be very limited access to credit. The second is increasing unemployment, which will affect the income of ordinary people. And the third is depleting wealth value,” El Erian said.

He added that the crisis was a failure of the whole global financial system. “It is a failure of the system at every level. People want someone to blame, but every level was involved – from individuals who were borrowing without the ability to repay, to regulators who allowed banks to offer unsecured credit.

“We are in the midst of this phenomenon which is now redefining a lot of things around the world. The crisis has multi-level sources, some structural and others related to risk management at every level, be it individual, institutional or governmental. There was also a failure in the systemic checks, which prevent such crises from spreading,” he said.

El Erian also highlighted the response by governments, but stressed the importance of managing expectations because the healing process would be gradual and time-consuming.

“We are redefining the global financial system and we are doing this not according to a master plan, but according to a series of ad hoc reactions. There are deep changes as the unthinkable becomes inevitable, such as the collapse of Lehman or global governmental intervention,” he said.

And last but not least, Suzanne herself weighs in with a NAR-worthy plea for generalized government bailouts:

“Problems are the parents of solutions. This gives us great opportunities to find solutions and new ways of looking at the world. This crisis has no boundaries or geographies, there is no political or market ideology that can isolate any country from the impact of the crisis. It is an interrelated crisis, not limited to the financial sector. We are now seeing its impact on the general economy and governments should deal with problems in the real economy as they dealt with the financial sector.

“Government response worldwide has been notable, as there was co-ordinated action,” she said.

Here’s a fantastic opportunity for some rich foreigner with more money than taste: Casa Simpatica in Encinitas, CA

I think you might be confusing Mohamed El-Erian for some middle eastern oil barron. He is a French citizen trying to become an American citizen. Brilliant guy that manages about $700 billion for PIMPCO. PIMPCO did not buy any subprime garabage, only agency debt. He had nothing to do with credit swaps or CDO’s. El-Erian’s book “When Markets Collide” pretty much outlined the global systemic failures that we have been watching for the past three years. The subtext of his thesis is that risk has been grossly underestimated and that for the next few years cash will be king. The book is based on many articles and speeches he has made over the last 5 years outlining just these problems.

As for NAR, well what can we say, they have been so discredited over the past few years that no one really takes them seriously anymore. Combine that with their political action activities which hitched their wagon to the wrong party this time around, and we likely have a neutered “Voice of Real Estate”.

Quick note: it’s spelled “PIMCO”, not “PIMPCO”? Sounds like it should be funny, but the joke may be too sophisticated for me (are they pimping for the soverign wealth funds?).

However, I do agree that Bill Gross and Mohammed Al-Arian have been sober and vocal throughout. Hearing Al-Arian’s prescriptions on the future sound pretty depressing. That is, he has been saying that cash is king and wealth protection is paramount. Now he is saying that the economy is going to be bad, and that regular people are going to have real problems dealing with it since credit has dryed up, too. And on top of that, people’s home values are going to decline.

Sounds like a doomer to me.