06/05/09 — Author: Don't worry; recovery will come

View Archive

Author: Don't worry; recovery will come

By Phyllis Moore
Published in News on June 5, 2009 1:46 PM

Whitney Tilson

The country's greatest economic downturn since the Great Depression might be waning, but it's going to take time, says the author of a book on the subject.

Whitney Tilson was still finishing up segments of his book "More Mortgage Meltdown -- 6 Ways to Profit in These Bad Times" as late as March, providing a quick turnaround to its hitting bookstores.

But Tilson didn't set out to be an author. Money management is his business.

He and Glenn Tongue, his co-author, are managing partners of T2 Partners LLC in New York. Tilson also writes a regular column on value investing for Kiplinger's Personal Finance, and has been featured on "60 Minutes."

These days he can be found traveling the country speaking on the hot topic of the economy. Wednesday night, he addressed a capacity crowd in Moffatt Auditorium at Wayne Community College.

There's lots of blame to go around for what's been happening in this country of late, Tilson said -- from "government-sponsored entities run amok" to housing lenders providing exorbitant loans that have been virtually impossible to pay back.

"We're talking about stuff that's never been seen before," he told the audience. "For about 20 years, we had our regulated lending system."

For decades since the Great Depression, he said, this country has become a nation "gorged in debt," to the benefit of financial services firms.

"It's been very profitable to lend lots of money, until the music stops," he said.

Currently, 9 percent of mortgages on family homes are delinquent or in foreclosure as of the first quarter of 2009, Tilson said.

"There's no evidence that it's leveling off now," he said.

The news is not all bad, though.

"We are a very wealthy and productive country. We will work through it. It will just take time," he said. "There are investment opportunities out there. You needn't despair."

For the most part, the "meltdown situation" occurred a few months ago. Some of the risk, Tilson suggested, "is now off the table." There will still be some fallout, though.

"Future losses will be driven by three factors -- what happens with the economy, particularly unemployment, what happens with interest rates, and with housing prices down so much, there are millions of homeowners under water," Tilson said. "Historically, people would do anything to avoid losing their home. ... Are people going to start behaving irrationally? No one knows the answer because we have never been in this situation."

With 5.7 million jobs lost since December 2007, more than half in the last five months alone, the good news is that consumer confidence rebounded in April and May, he said.

"Americans are becoming savers," he said. "This is good long-term, individually and as a nation."

As for the "underwater owners" -- 24 percent of homeowners with a mortgage owe more than their home is worth, Tilson pointed out -- they are much more likely to default on the loans.

The prospects for the housing market to turn around has a way to go, roughly another year before it bottoms out, Tilson said.

"When home prices do bottom, millions of Americans are under water, but they can't sell their homes," he said.

Another by-product occurred when homeowners used home equity loans to borrow against their houses, for such purchases as new cars. That served to compound the lending equation further, he said, but things may be starting to stabilize.

Tilson suggests the nation might be in the "seventh inning of the bursting of the Great Housing Bubble," and that eventually the "U.S. economy will do better."

"It seems that we dodged the great Armageddon. There's enough signs that at least the rate of decline is slowing," he said. "I can't tell you when, I wish I could tell you but if I did, you shouldn't listen to me.

"My general feeling is, we are a wealthy enough country to make it through, but it will probably take a few years."

Tilson's appearance was sponsored by the Wayne Community College Foundation and Baddour Parker and Hine, which purchased copies of Tilson's books to distribute to audience members.

Baddour Parker and Hine partner attorney John Hine said afterwards he was "ecstatic" about the event.

"I was expecting a good turnout but it was probably at least twice as much as I was expecting," he said. "I have had a lot of people call me or e-mail me about it. I think the people really enjoyed it a lot."

Despite the complexity of the topic, Tilson conveyed it well, Hine said.

"A lot of people have opinions about the economy -- some may be right, some may be wrong -- but he had a lot of information to back it up," Hine said, adding, "I think it's really good for the community college to have these kinds of programs."

Dr. George Mayo was also in the audience. And while he admitted he didn't have a strong background in economics, he appreciated the information.

"I thoroughly enjoyed the program. I found it to be quite beneficial and extremely interesting. I'm glad I went," he said.