Well, what a difference a week makes...bank failures...institutional brokerages running around like chicken little...gov't bailing out these institutions to the tune of BILLIONS of dollars...hmmm, this sounds eerily familiar. A credo I have adopted in light of our current political situation is "those who do not know history are condemned to repeat it".

This subprime crisis and the resulting gov't rescue is is literally a page out of the 80's and early 90's...the debacle known as the S & L crisis. Here's a quick summary of what happened then (notice the parallels) courtesy of Wikipedia:

"The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts—which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse selection incentives compounded the system’s losses.
The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, the lowest rate since World War II."

How is this going to play out...initial reports suggest the creation of a RTC-type entity to spin off the bad debt and assets, which will, in the end, cost US - the taxpayers!

This may affect our long-term real estate outlook - i am expecting some add'l stabilization sooner than what we are currently forecasting...stay tuned...it will only get more interesting.