I don't get on what exactly the optimism is based on.
I don't get what all the pessimism is based on either.
Initially, the sub-prime mortgage/ABCP crisis that spawned the chain of events over the last 18 moths was only 4% of the total mortgages in the United States.
I repeat: 4%.
That means the other 96% of mortgages in the U.S. were profitable loans made to people with good credit and at low risk to default.
Unfortunately, this was not what the mass media wanted you to know. They thrive on scaring John Q. Public half to death. As such, the reports of the so-called "sub-prime crisis" made it appear that 96% of the mortgages in the US was unprofitable. This placed the seeds of fear in the minds of the people.
To exacerbate the problem, the major lending houses that made the sub-prime loans split them up and sold them as investments to other legitimate financial institutions. As the ball unwound, the banks soon stopped trusting each other and would not accept these kinds of investments (or any other kind, for that matter) in exchange for capital. This in turn locked up corporate credit and caused an extreme downturn in the stock market. Coupled with (at the time) $130 oil, the meltdown soon gained speed. As people watched their investments plummet, the media fueled the fires with screams of another great depression. This started new fears of a run on the banks as investors and account holders would try to retain as much capital as possible in hard cash. Since most money held by banks is imaginary anyways, and there was no way to obtain more via corporate credit, the government was forced to step in and give money to these banks to keep them afloat (something that was never done in the dirty 30's).
Now, when assessed in hindsight, do you really think that 4% of the U.S. mortgages alone were enough to bring the world economy to its knees? I don't. It was fear and blatant greed with a healthy dose of pessimism that did. I honestly believe if not for the doom culture we live in today, this would not have been anywhere near as bad a meltdown it has become. Most blue chip stocks with great assets are at historically low prices right now. One can easily stand to make a fortune by investing in those companies right now. However, thanks to doom culture, people are avoiding the market like a plague ship run aground. Once the smart money realizes that the bleeding has stopped, the market will climb at a nearly unprecedented pace, and those that jumped on board now will be the ones making the most wealth from it.
