TPS

On the flip side of that coin, why would banks extend (mortgage) credit in markets where housing prices are still falling? No one knows if a mere $700 billion is enough to bail out Wall STreet. In each case the bailout Bandaid gets bigger and bigger. As long as housing prices continue to fall, and delinquencies and foreclosures increase, you haven't solved the root of the crisis. Despite the attempts to blame democrats, republicans, lax lending standards, or the push for increased homeownership, the blame for this crisis lays at the foot of Wall Street.

His "credit problems" are a function of his inability to sell trucks and SUVs. It's a bit disingenuous to blame this on the credit crisis.

Isn't it about getting the "toxic stuff" off of the balance sheets? And I raise that issue because of this: DBank

How will anyone outside of Paulson know whether he's buying securities that actually have mortgages explicitly tied to them or not? For example, if he buys the worst of the tranches from a packaged CMO and the higher rated tranches are still out there, then who actually has claim on the underlying mortgages backing all of the tranches? Will the government be stuck with something it can't ever sell?

Didn't you get your refund from the last time govt did this? Isn't that what happened when "the govt made money" on the last bail out?

SHTF? Should I short them?

I agree. I would add a few more culprits though. For one, the ratings agencies were complicit in their very generous risk models so the asset-backed securities could get their top ratings; then the monolines jumping in on insuring the nonn-AAA. As in every bubble, everyone wanted a piece of the action...

You seem to imply it's changes to promote increased minority homeownership, but the articles indicate those programs aren't to blame. So what is your point? Besides, I believe most of the problems derive from the "house flippers" in the really hot markets. You buy an asset with someone else's money, and if it goes up in value, you sell it; if it falls, you walk away.

Of course the walls were coming down for decades going back to deregulation in the early 1980s. Securitizations also go way back (and my recollection is that they were started by banks, but polished by IBs). My point is the current financial crisis stems from the housing bubble. Maybe 1999 is not the starting point either (And i didn't say that the end of GS was responsible, I said that you can start there)? Could it be the fallout from Enron and fraud in the stock market caused investors to move to a new market in 2002? As I said, there are many factors (including both parties) that can be blamed. However, I do disagree with the belief that this housing bubble was caused by something from 20+ years ago. As for Spitzer, that's exactly what he was writing about, that state's were trying to go after predatory lending practices but they were being squelched by the Feds.

Bull2. It doesn't go back "decades." It starts in 1999 with the end of Glass-Steagall. That should make the right happy because we all know who was president--although I could play the congress card like y'all like to do.... The interest only loans, the no-doc/lo-doc loans are all recent phenomena. I posted an editorial awhile back by Spitzer (while he was still governor) who blamed the administration for preventing states from limiting predatory loan practices. There is a lot of blame to go around, and almost all of it happened after the 1999 deregulation. Btw, did you mean to say "reserve requirements"? Or did you mean down payment on the mortgages?

First, I agree with much of this. However, if one does blame the guarantee, then that gets to the argument made by austrian folks here, that without government intervention of any kind there would be no crisis; or at best, they'd be less severe. Intervention of any kind is not the cause; crises arise from the nature of financial capitalism--leveraged and profit driven (note to those who always try to put words in my mouth--this is not a value judgment either about the system). Financial innovations arise from seeking profits or to circumvent regulations which restrain profit making. We agree that financial speculation and bubbles have always happened, always will. While older factors play a role, it's a consequence of behavior that began in 1999 with the end of Glass-Steagall--In fact, one might argue that this deregulation was more imortant in causing the crisis than government's guarante of the GSEs. So the walls come down; the enron debacle has investors looking for returns elsewhere (and of course they're flush with cash from Bush's supply-side tax cuts... ); 911 has the Fed lowering interest rates; China ensures they stay low; the bubble begins; everyone believes tulips will continue to rise in value; everyone is making money hand over fist; everyone who isn't yet, wants to; build more houses, offer interest-only loans so more people can qualify, generate more fees; risk has been lowered by securitizing; another lucrative market emerges with insuring the CMOs, CDOs, etc, which are split into so many different pieces some fund managers don't even know what they're holding--but they are insured); the insurance vehicle itself becomes an asset to trade; and on and on... Why should it stop when everyone is making so much money? The very nature of a bubble causes people to under-estimate the risk. I don't think it's a devious plot by the heads of companies saying, "well the government will bail us out." I don't think there are many CEOs willing to risk losing control of their firms by doing so. I'll say it again, it's just the nature of the beast. The financial industry said they'd self-regulate. That didn't work too well. Regulation won't prevent future crises, but it can reduce their severity. "We live in interesting times..."

I guess this is what you meant by "circle jerk."

That was funny. Sometimes you are almost likeable...

Commodity prices went up because billions of dollars from investment houses poured into the futures markets driving up all prices. Some people actually believed the "professional analysts" from these same investment houses who said oil could go up to $200 a barrel. Their bubble has burst. Because they need cash to shore up all their other areas, they are liquidating their commodity investments; hence the drop in prices.

How long ago were Freddie and Fannie given implicit guarantees? Did the crisis start 50 years ago? Seems to me something much more recent triggered this crisis...

Those are in Kindleberger's famous book as well. I wanted to focus on the US prior to the fed.

How do you define "big ass bubble?" Here are a few before the fed was created: US Banking crisis of 1837, speculation in cotton and land. Depression lasted until 1843. 1873 financial crisis based on railroad speculation. 1893 sliver speculation crisis and a depression that lasted 5-6 years. 1907 financial crisis related to coffee and union pacific.

I think it's pretty clear now that speculators--investment banks, hedge funds, and others--were the ones driving oil prices, not "fundamentals." WSJ The article is from today's WSJ.

If you can find an actual quote of "what Keynes said" about "limiting profits through taxation" I'll buy you dinner (via gift certificate) at a restaurant of your choice. Specifically, show me the source where Keynes said (in his model) that you need to limit profits through taxation. And where exactly did you find this explanation of the "Keynesian model?"

It's both, but demand is more important than lowering interest rates in a downturn. According to taterhill's post, the S&P is lower now than when Bush took office. Or did the tax cuts end in 2007? My point. Supply-side policies, or trickle-down, focuses most of the tax breaks on the upper income levels. What do the wealthier classes do with it? They purchase more financial assets or real estate. Increased values of financial assets doesn't mean increased real business investment. It's increases in the capital stock that are important, not inflated financial asset values or real estate. We're seeing the "real" impact from this period as financial manipulations based on the real estate bubble, not any real productive change in the American economy. A real supply-side tax cut would focus on tax cuts for businesses directly, not indirectly through "cutting taxes on the rich" and hoping more financial capital formation leads to more physical capital formation.

Of course he's a homer, he used to write for the Buffalo News.

Do they all happen to come from Chicago U or GMU or the Liberty Fund? Christ! Here's a simple one: look at the magnitude of recessions (the duration and severity) since government involvement was ratcheted up after WWII vs prior to WWII--on average, which were worse, before or after? Large government has stabilized demand so that servere downturns are prevented. That's an economic fact, it's not a value judgment. The market system is not some ideal that if left alone produces the best of all possible worlds Candide. The nature of the beast is based on the profit motive and risk taking, and with a financial structure based on leverage and faith, you get periodic crises regardless of government's role. Imagine what happens to those crises as "capital" gets more concentrated, in both the real and financial sectors. And what exactly is government now? Governments operate to protect the people that line their pockets. So, in a sense, I agree with arguments to reduce the size and scope of government, because you are really talking about reducing the ability to protect "vested interests." Aside: I have to laugh every time I think about the discussion of "capital formation" and supply side tax cuts. It appears the capital created was paper capital only...but it did create a lot of finance jobs.

An interesting hypothesis on the futures market manipulations, and not the first time I've heard this... futures manipulation

So you didn't jump out a window...?