Long time readers of this blog may recall this post from more than two years ago, in which I predicted the City Council would sneak a term limits referendum onto the ballot for the November 2007 election, when virtually no public offices were being contested and virtually no one would be showing up to vote. I over-estimated the character of these officials and the Mayor; they have decided not to bother with any referendum at all. I also predicted, over and over, the bursting of the housing bubble, the end of excess consumer spending over and above income, and the detonation of exotic financial instruments like CDOs and managers like hedge funds, with collateral damage for public employee pension funds and thus public services and taxes. To me, and many others, it was completely obvious that all this would have to unravel sooner or later, and it’s amazing it went on as long as it did. Here I underestimated the damage.
I never imagined the global financial system would be taken to the brink of collapse, and the world to the brink of Great Depression II. I expected housing prices, stock prices, and interest rates to fall back to more reasonable levels, bringing losses and recession but not disaster. We face disaster not only due to excess leverage, but also because because while most of us shouldn’t trust business in this era, it turns out that people in the financial sector in fact do not trust each other, and assume each other are lying and hiding problems, perhaps for good reason. Thus, short term financing has collapsed.
And to think, someone writing as Old Tom used to comment on my posts, accusing me of being a gloomster whose dark scenarios never came true. In fact, I’ve been guilty of insufficient cynicism.