What can we expect this year in the world of business? Continued growth in the stock market.

After surpassing 13,000 in 2007, the Dow collapsed in 2008 and is only now making its comeback. But comeback it will continue to do. Yet we should not equate the resurgence of the stock market with successful policies in Washington. We can’t tax our way and spend our way to growth.

Instead, the stock market’s comeback shows that American capitalism is alive and well and can endure any policies from Washington.

Just think how much more the markets would be growing if we would cut taxes and spending.

Today we’re going to take a break in our series on alternative energy.  I want to go back to June 25 when I wrote on this blog:

“we are facing a ‘ticking time bomb.’ Why?  Because some $1.3 trillion in mortgage loans to commercial properties will come due between now and 2013.”

Now, two months later, Investor’s Business Daily is making the same warning:

http://www.ibdeditorials.com/IBDArticles.aspx?id=335660380569943

Many people see the recent uptick in the stock market as proof that the economy is coming back.  But listen to what IBD warns:

“But is this daylight at the end of the tunnel or the beam of an oncoming locomotive of commercial real estate insolvency coming down the tracks on a collision course with a shaky economy?”

I’m afraid it still looks like a train from where I am.

The article notes that: “Commercial real estate (CRE), valued at $3.5 trillion in the U.S., has experienced a 39% decline in prices from the peak only two years ago, according to the MIT Center for Real Estate.”

So hold onto your wallets.  We’re not out of the economic woods just yet.  In fact, things might get worse before they get better.

Yesterday, we talked about the collapse of Bear Stearns and the impact it had on the economy in the Spring of 2008. But if Bear Stearns became the company most associated with the 2008 market meltdown, then Bernie Madoff was the person most associated with it.

Madoff had been one of the most respected investors on Wall Street. He had set up an investment fund called Ascot Partners. For years, the Ascot Partners fund provided outstanding returns for investors. But when the stock market collapsed in 2008, Madoff found himself in trouble. His investors came calling and wanted their money.

But there was a problem: the money wasn’t there. Almost from the start, the Ascot Partners fund had been a Ponzi scheme. Madoff would pay off investors with new money from new investors. No one really made any money off their investments other than Madoff who was laughing all the way to the bank. When Madoff’s house of cards collapsed and he was arrested, the market continued to tank. Thus, Madoff’s devious ways hurt not only himself and his investors but anyone connected to the stock market, which is to say everyone.

So what began in housing, then spread to major financial houses like Bear Stearns and later to rich and powerful investors like Bernie Madoff. By the end of 2008, the American economy was in a complete free fall…and it is only now beginning to stabilize itself.

In March of 2008, Bear Stearns looked to be on top of the world. For the first quarter, the legendary financial house was set to announce $115 million in profits. By the middle of the month, the company had collapsed. Eighty-five years of history vanished. And with it, the economic meltdown of 2008 began. The aftermath continues today.

What happened? It all begins at home. Or, in this case, it all began with housing. A few years before, Bear Stearns pioneered the securitization and asset-backed securities market. As investor losses grew in 2006 and 2007, Bear Stearns increased its exposure to mortgage-based assets, including many that would become central in the subprime mortgage crisis.

Subprime mortgages were loans given to folks with poor credit histories. In previous times, most of these folks would not have received a mortgage. But thanks to government pressure, financial institutions began offering subprime mortgages as a way to democratize the housing market. But when many of these new home owners had to default on their loan, the subprime mortgage crisis was underway. And since Bear Stearns had invested so much in the securitization of these loans, the entire company began a rapid descent into disaster in March 2008.

But Bear Stearns was just part of the problem. Check out the blog tomorrow for more information on how the 2008 economic crisis went from bad to worse.