No Recession Here—Move Along Now

Let's see now, President Bush doesn't think there's going to be a recession in 2008. Neither does Federal Reserve Chairman Ben Bernanke—though clearly he's pretty concerned about "downside risks." And, increasingly, neither do the betting markets. Over at Intrade, the odds of a recession have fallen to 55.8 percent from a high of 77.5 percent a month ago. Maybe the sharpies on Wall Street are figuring out what my friend Rich Karlgaard of Forbes already knows:

The subprime mortgage mess. How big a problem is this? No one really knows, but so far banks have written off about $150 billion in bad loans. Now, $150 billion sounds huge. But it is only 1% of America's annual GDP. It is also less than 1% of the market capitalization of U.S. stocks. In any typically volatile trading day U.S. stocks gain or lose $150 billion every hour. How often does one hear that?...The nearest historical comparison we have is the savings-and-loan crisis of 1986-95. On a constant dollar basis—so we can compare apples with apples—the S&L crisis saw $700 billion in bad loans. Nearly five times as much as we've seen in the subprime mess so far. The S&L crisis caused some damage, to be sure. But during the 1986-95 period the U.S. economy grew and stocks went up. We survived stock shocks in 1987 and 1989 and a mild recession in 1990. The country did not collapse into a 1930s-like depression.