Every week it's the same. The news reports on the latest financial developments. Their sources are "The Experts".
There are many indexes of the financial system. Commonly referenced ones are things like "Interest Rates" and "Unemployment". Other indexes include the cost of living, real estate, consumer confidence. The list goes on.
But what all of them attempt to do is reassure us that things are not really, really, as bad as they seem.
Every week the newspapers run a report on the real estate market in and around the Calgary area. Prices of homes, how long it takes for them to sell, how many are on the market, etc. They consult with "The Experts" and write up articles that advise people that while things are bad, they are not really as bad as they seem. Things will get better.
"The Experts" in this instance are usually comprised of somebody from the Calgary Real Estate Board and an informed mortgage broker. Or, to simplify things somewhat, a banker.
Now it's odd we consult these experts, because none of them saw the bank collapse in the US coming. None of them foresaw the recession we're in. Or none went on record as seeing it coming. Which is odd, because even a blind person with a remedial knowledge of money and economics could have seen it coming. What I think it's likely that a great many of them were indeed idiots and didn't see it coming, I think it's more likely that many of them did see it coming but couldn't pull themselves away from the trough that was easy money for long enough to warn anyone.
Now there are a few reasons for this. The first of which would be greed. Nobody wants to get off a free ride. And, truth be told, the consequences of greed would only be borne by the greedy in small measure. Realtors now making double, threefold what they were a decade ago aren't likely to advise you you're overpaying. Bankers making money lending to buyers aren't likely to advise you to wait until prices drop so you can carry only half the mortgage. If, like some, you saw it coming you would simply lie a bit aside, and at the time this was brewing there was lots to be laid aside. Maybe move it offshore, or invest it in gold. You can profit from crisis if you know how to play the game. The second reason might be loyalty, anyone who warned that the "Boom" was a bubble was subject to cruel censure and scathing public ridicule. Many fine examples can be seen here (Peter Schiff enduring the informed opinions of his expert collegues). If you came clean with a reasonable assessment or prediction of where the economy was heading and worked for a bank or Real Estate Board, you'd be unemployed. And the third reason is that to give bad news in this instance has a strong element of self fulfilling prophecy about it. If, for example, you warned that house prices were ridiculously high and would soon be dropping, that people had better sell now if they hoped to realize any sort of profit or minimize their losses, then of course there would be panic in the market, people would rush to sell their houses, and prices would plummet.
Nobody likes bad news. People who stretched themselves far beyond their means don't want to hear that their investment is losing value at a rate of $1000.00 per week.
SO armed with this information the media still consults with the Oracles of Finance and issues summary reports about the state of the nation.
"Things are bad now, but will pick up soon...." is the message. Occasionally at the end of an article they will append a short fact list which directly contradicts their predictions. Phrases like "Slow housing starts" and "Market Adjustments" conceal the truth, imply that things will improve. Meanwhile unemployment rates jump by 2, 3, 4%. Realize that when unemployment rises, so do consumer bankruptcies. That when house prices drop, consumer bankruptcies increase. If you're not working chances are EI isn't going to pay you enough to carry a $400, 000+ mortgage. Chances are if you're carrying a $400, 000 mortgage and prices drop to $300, 000 you might rethink carrying your mortgage and simply walk away from the debt.
And when people realize this there will begin the domino effect, more bankruptcies = more foreclosures, more foreclosures = more houses on the market, more houses on the market = lower prices, lower prices = more bankruptcies (*see above; as people walk away from higher mortgages), and the cycle continues until prices reflect a "Fair Market Value".
By "Fair Market Value" I mean that direct correlation between the costs of materials and labour and the price of the final product.
In the past 10 years that relationship has been lost. "Fair Market Value", in the understanding of realtors, means "What are you willing to pay?" or "How much can you possibly borrow?".
The phrase "Fair Market Value" scares the shit out of bankers and realtors. Realtors, because it implies the end to a boom that made many of them millionaires. Not bad for a job that requires only a few months training. Bankers because they lent money they can never hope to recover against properties that were appraised grossly above "Fair Market Value".
Still the media approaches the Oracles of Finance for their monthly assessments. Despite knowing that it's against their interests to even slightly tell the truth, that their interests run contrary to the truth and facts, that the truth will crush them, they ask them their opinion.
Despite knowing that their greedy lending strategies and skewed prognostications are in no small measure responsible for this mess they are consulted, their opinion, in this instance, is invaluable.
They are, after all, "The Experts".
Don't trust the experts.