The Current Economic Crisis: Hell, Meet Handbasket

Currently, we find ourselves in a mess that many are calling the most serious economic crisis since the Great Depression. If not worse. A mile-high mountain of paper profits has been set ablaze and reduced to ashes, choking investors who put their faith in houses, stocks, or commodities, or… or… just about anything else you can name.

The bad news is that no one completely understands what’s going on; the good news is that, yes, a measure of sense can be made of the madness. Being armed with that bit of understanding should enable us to survive the tsunami… even prosper.

The Road to Perdition

Until recently, average Americans were only dimly aware that there were two types of banks – the commercial banks nearby and the major investment banks located in faraway New York. Understanding the bank where they conducted business, with people they knew, was enough. The big, impersonal Wall Street banks – which dealt in higher-risk investments with potentially higher rewards – were for companies and the very rich.

While ordinary citizens thought little about the distinctions among banks, the government did. Seventy-five years ago, as the Depression deepened, lawmakers were desperately trying to determine the causes of the crisis (read, looking for scapegoats). Some of the things they found were conflicts of interest and opportunities for fraud linked to the mixing of commercial and investment banking.

Congress decided to erect a “wall” between commercial and investment banking, and so passed the Banking Act of 1933, usually referred to as the Glass-Steagall Act. Glass-Steagall created the Federal Deposit Insurance Corporation (FDIC) to protect depositors in commercial banks, and it forbade commercial banks to underwrite securities or act as stockbrokers or dealers.

Glass-Steagall remained in force for six and a half decades, although various deregulatory measures and changes in exchange rules chipped away at it. Notably, in 1970 a rule excluding public companies from membership in the New York Stock Exchange was dropped. The last major private institution, Goldman Sachs, went public in 1999. This allowed investment banks to sell stock to any potential investor and greatly expand their capital base.

Over the last two decades of the 20th century, the financial industry lobbied vigorously for the repeal of Glass-Steagall and, in 1999, they got their way with the enactment of the Financial Services Modernization Act. The door was opened to consolidation in the banking industry.

With one stroke of a pen, commercial bankers could begin turning their loans into investment products. (Glass-Steagall had prevented them from selling debt-backed securities for which they were the underwriters.) And Wall Street investment banks were suddenly in the mortgage business. It would prove to be a marriage made somewhere significantly south of heaven.

Bubble, Bubble...

We’re not fans of government regulation, but a deregulated marketplace carries with it certain imperatives. It functions as it should only in the absence of both criminal and boneheaded behavior. We can erect oversights meant to prevent the former and laws to punish it after the fact. But all the regulation in the world won’t do much about the latter, since both market traders and the regulation itself may be boneheaded.

The biggest factor here was the removal of Glass-Steagall prohibitions, but there were two other important tweakings.

The Commodities Futures Modernization Act of 2000 transformed the new mortgage-backed securities into a commodity, enabling them to be traded on futures exchanges with little oversight by any federal or state regulatory body.

Completing the trifecta, the Securities and Exchange Commission in 2004 waived its leverage rules. Previously, broker/dealer net-capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. But under the new regulations, five companies – Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley – were granted an exemption, which they promptly used to lever up 20, 30, even 40 to 1.

Just as Congress was repealing Glass-Steagall, the tech stock bubble was inflating beyond sustainability. It would soon be pricked, ushering in a brief recession during which investors began the hunt for the next big thing.

Well, how about housing?

Back in 1977, Congress passed the Community Reinvestment Act, which had the goal of extending homeownership to the largest possible pool of Americans. Over the next 25 years, legislative supplements, a robust housing market, and aggressive government enforcement of “fairness in lending” combined to weaken bank standards of who did or didn’t qualify for a loan.

But that was just the beginning. In an effort to end a recession in the new century’s first years, the Greenspan Fed reduced interest rates to near nothing and poured liquidity into the financial markets. At the same time, capital that had fled the stock market was looking for action.

The commercial banks – and independent mortgagors like Countrywide Credit – were awash in cash. They started lending it, and every borrower’s credentials were deemed excellent, even those with low income, bad credit, and no money for a down payment.

The perfect storm was building. But at first, boy, did things ever look rosy. The country’s homeownership rate – 62.1% in 1960, rising to only 64.1% in 1994 – shot up to 68.9% by 2006.

As homeowner mania seized hold of the public imagination, people began treating their homes as ATMs. If they needed cash, they borrowed against their growing equity. Real estate speculators flipped houses like crazy. Why not, when there’s no risk? Housing prices only head in one direction, up, up, up, right?

It sure looked that way. The yearly average median price of an existing home went from $23,000 in 1970, to $62,200 in 1980, to $97,300 in 1990, to $147,300 in 2000 and crested at $221,900 in 2006. Astonishingly, despite recessions in the early ’80s and early ’00s, there wasn’t a single down year for housing in all that time.

However, in 2007 housing became the latest bubble to burst, pricked by unrealistic prices, overbuilding, and the retreat from ultra-low interest rates. Concurrently, as house prices finally began to drop, a whole bunch of those no- or low-interest loans began to reset.

Why Do Rational People Do Irrational Things?

Despite the well-earned reputation of some Wall Street high rollers, bankers tend not to be a reckless lot, nor financial dunces. In general, they would rather deploy a large amount of capital into a safe, low-yield investment than put a small amount of capital into something with very high risk.

With the new environment, however, the game changed. Commercial bankers found themselves making loans to shakier and shakier recipients, while at the same time, the investment banks and their clients were clamoring for new investment products.

So bankers did what any conservative person would do. They hedged their bets. They bundled up their loans and sold the packages to the investment banks. The outcome was essentially the mortgage business being uprooted from the commercial banks and transplanted into the investment houses, which have far less restrictive requirements about reserve capital, far fewer limits on the buying and selling of securities, and far less regulatory oversight.

The investment banks did not set out, of course, to become landlords. They just wanted some product to sell for which there was a ready market. As capitalist ingenuity collided with profit motive, they found there was no shortage of products that could be created; the mortgage bundles were sliced, diced, and repackaged into a bewildering array of securities, like structured investment vehicles (SIVs), collateralized debt obligations (CDOs), mortgage-backed securities (MBSs), and on and on.

The extent of the slicing and dicing into what financial chefs refer to as tranches was such that the original mortgage might be tossed from buyer to buyer, or even itself split into parts. Each time a package was put together and sold, the seller stretched to get top dollar for each tranche, requiring the underlying assets to be risk-rated and then assigned real-world value. In the end, rating services had little idea what they were rating (we're being charitable here), and buyers had no idea what their purchase was really worth.

And always lurking in the background was the possibility that defaults on the mortgages supporting the entire process could have a profound ripple effect, given that these products became increasingly leveraged. Knowing this, traders invented credit default swaps (CDSs), those gnarly little creatures that morphed into Godzilla after 2004.

CDSs are an insurance policy, a way of dealing with fear, and a device for attenuating the risk inherent in trading products one may not fully understand. Those buying the protection pay an upfront amount and yearly premiums to the protection sellers, who agree in return to cover any loss to the face value of the security. The result is a private, two-party contract, devoid of regulatory oversight.

There are a bunch of nasty horseflies in this particular ointment. For one, the holder of that security (who is now “protected” by a CDS) might turn around and sell it to a third party, who might himself insure and resell it, and so on, creating an impossibly complex chain of ownership and obligation. Additionally, the CDS itself can be traded over the counter. Furthermore, any of the underlying assets might also get partitioned into different tranches, adding to the confusion. And finally, short sellers can work on just about any joint in the structure.

And here’s the really big rub. Suppose the party providing the initial insurance protection – having already collected its upfront payment and premiums – doesn’t have the money to pay the insured buyer when a default occurs. Or suppose the “insurer” goes bankrupt. In either instance, the buyer who thought he was protected finds himself left naked and alone.

However, that possibility seems not to have been considered as the financial world created an interlocking system of derivatives that not even a Cray supercomputer could sort out. The only certainty: it was an arrangement that depended on a robust economy and rising house prices.

Except, of course, things didn’t work out that way.

When the housing slump hit, defaults in the relatively small subprime sector (less than 20% of mortgages) started a chain reaction that raced through the derivatives market, the effects compounding geometrically, until finally the world financial structure was facing collapse.

Capital and the Capitol

When capital is allocated in a free market, it moves toward the productive, and the economy tends to prosper. By the same token, when it is misallocated, an economy can hit the skids.

We’ve had decades of misallocated capital in the U.S. Instead of saving, we’ve been spending… way beyond our means. Rather than investing in something productive, we’ve been gambling, taking on ever greater risks in the hope of the big payoff. Instead of creating the clean balance sheets that support stability – at all levels, personal, corporate, and governmental – we’ve piled up mountains of unsustainable debt.

The tragedy is that the prudent will suffer right along with the reckless. Misallocations of capital must be unwound, one way or another, before an economy can get back on its feet. It will be no simple task, and it’s made even more difficult by those who put themselves in charge of the clean-up: certain residents of Washington, D.C.

At the center of the storm are two men who propose to save the nation, and they could hardly be more different.

Secretary of the Treasury Henry Paulson is the Street’s guy. The former CEO of Goldman Sachs, the most powerful and successful investment bank, he brings a Wall Street insider's perspective to the table. However committed to public service he may be, he cannot be expected to act against the interests of his friends in the banking community.

And then there’s Fed Chairman Ben Bernanke, a pure academician. For better or worse, Bernanke’s specialty is America’s Great Depression, and he considers himself an expert on the subject. Above all else, he wants to be remembered as the guy who understood how to steer the country away from the shoals of a Second Great Depression.

The Uncharted Sea

There is no question that Big Ben and Hammerin’ Hank are trying to navigate in unfamiliar waters. Today’s economy hardly mirrors that of a decade ago, much less the conditions of the 1930s.

Back in the spring of 2007, as the initial cracks in the structure began to appear, few were expecting the broken-levee crisis that has since unfolded. Savants such as our own Doug Casey and Bud Conrad saw it coming and said so, but no one in the mainstream was listening.

What was actually happening was that the first dominoes – subprime borrowers who should never have been approved – had begun to fall. In and of themselves, they would have been little more than straws in the wind. But because of the multiplier effect of the derivatives market, their influence reached far beyond a few blown mortgages. As more and more debtors were unable to pay, mortgage-backed securities lost value. And then the securities based on the MBSs lost value. And then…

Here’s where CDSs were supposed to ride to the rescue. They didn’t, for the simple reason that they had long since strayed far from their original insurance intent and become primarily an instrument that gave derivatives market players access to an asset class (mortgages) without having to actually own the asset.

As MBS values were hammered by defaults on the underlying loans, buyers of CDS protection began trying to collect. That hit CDS sellers, who were being drained of cash. Further out, derivatives speculators who had bet the wrong way defaulted or went bankrupt, sending shockwaves back down the line. Slowly at first, and then with increasing speed, the capital necessary to keep the system alive started drying up.

Everyone is familiar by now with the institutions that have collapsed or been bought out or taken over by the government. The list of names is stunning: Bear Stearns, Countrywide Credit, MBIA, Fannie Mae, Freddie Mac, AIG, Lehman Brothers, Washington Mutual, Merrill Lynch, Wachovia. Wall Street has undergone a transformation unimaginable a year ago. The big investment banks are gone -- bankrupted or swallowed up by someone else. Even the two that remain standing, Goldman (GS) and JP Morgan (JPM), have had to reinvent themselves as bank holding companies to save their own hides.

The movement of capital among financial institutions is based not only on integrity but on confidence. Right now, that confidence has evaporated. Banks are carrying so much paper of indeterminate value that it’s impossible to price in the risk of making a loan. So they aren’t lending to each other, out of fear that they’ll never get their money back.

The credit market, upon which our economy depends, has seized up.

When the government finally got around to admitting that there was a problem, it was already too late for any simple fix. So Washington had only two options: stand back and let the market sort things out or take drastic, emergency action.

None Dare Call It…What, Exactly?

No one knows quite what to make of Washington’s response to the credit crisis. Some are howling that it’s socialism, others that it’s fascism or, at best, corporatism, an unholy alliance of private enterprise and the state.

Whatever the name, there is no question that the government is boldly going where none has gone before, helping to bail out some financial institutions and seizing control of others.

The Treasury Department now has $700 billion – albeit with some strings attached – with which it can buy up toxic waste paper through the Troubled Asset Relief Program (TARP). Taking this direction, instead of making direct loans, allows the “assets” they buy to be resold somewhere down the road. And perhaps, the plan’s defenders say, even at a profit. Like that’s gonna happen.

Proceeding in ways never before tried, in early October the Fed announced it was opening the Commercial Paper Funding Facility. For the first time, it will buy unsecured paper. To facilitate this and to cover potential losses, the Treasury will deposit an unspecified amount at the Fed. This is in addition to the Treasury’s own buying spree, and the Fannie Freddie conservatorship, and the expansion of the FDIC to cover deposits up to $250,000, a move likely to send that agency back to the Treasury for another fill-up.

The Train to Nowhere

All the government’s actions to date have accomplished… well, precious little. For the time being, credit remains frozen. Banks are still making overnight loans to other banks, but only very selectively. The stock market, despite coming off its lows, is extremely volatile after enduring its worst crash ever. Commodities have sold off. States and municipalities are facing severe budget cuts and, in some cases, bankruptcy. Money markets are in trouble. Pensions and retirement funds are at risk. And recession, or worse, looms increasingly large on the horizon.

Nor is the crisis purely an American problem. Much of the U.S. bad paper was sold to gullible Europeans, and world economies and markets are so interconnected that if one sneezes, someone else catches a cold. Already there have been big bailouts in Germany and England. The Irish government recently announced it was guaranteeing all bank deposits, which attracted a flood of money from elsewhere in the European Union, enraged other members of the EU, and raised questions of how long that shaky confederation can endure as each country charts its own path through the economic minefield.

This is a once-in-a-lifetime event, a train to nowhere, and it will cause no end of suffering.

Since we can’t stop it, we’ll do the next best thing, which is to protect ourselves. That means assessing the likely fallout from the government’s meddling in the market, and developing guidelines for the best way to ride out the hurricane.

Some consequences are already baked in the cake. Casey Research Chief Economist Bud Conrad has been studying the unfolding crisis for years. Based on his work, this is what we foresee:

• More financial institutions will collapse. So will many hedge funds. Money market funds are also shaky; although the government will do all it can to keep them solvent, those that invest in anything but Treasury bills are at risk.
• The economy will fall into recession. By most lights, it’s already here. It won’t be brief, and there is even a chance that despite all the Fed’s pump priming, we could drop into a depression. For however long credit remains tight, business will be unable to function normally, and the consumer-driven economy will grind to a halt.
• The whole structured finance model under which we’ve been operating is broken. The packaging of mortgages and other forms of consumer debt is impossible when no one will buy the packages. The trillions of dollars of outstanding mortgage derivatives will have to be unwound somehow.
• Without debt leverage, private equity financing is dead. Raising money for business start-ups or expansion will be extremely challenging. IPOs will be few and far between. Leveraged buyouts are gone. Mergers and acquisitions will mostly be limited to distress sales.
• At best, the government will succeed at what it’s trying to do, i.e., stave off a depression, by sacrificing the dollar and allowing a fairly high level of inflation. If we’re lucky, it won’t turn into hyperinflation.
• Interest rates are going up. On the day of the coordinated, worldwide rate cut, the Fed lowered its discount rate by 50 basis points, yet the yield on the 10-year Treasuries rose from 3.5 to 3.7%. The Fed’s credibility is about shot, as it has debased its own balance sheet by swapping good debt for bad. With more than half of its reserves gone, it could itself become the subject of a Treasury Department bailout.
• It is highly likely that the era of U.S. economic dominance, when the almighty dollar served as the reserve currency of the world, is drawing to a close.

But on the bright side… Well, there is no bright side. The hole that we’ve dug for ourselves will take a while to climb out of, and it won’t be easy. But at least you can protect yourself.

Comments

[investor88:]

Doug has written a most insightful article, not one of those vested interest articles shouting "cash is trash", buy low now or you will regret missing the buying opportunity of a lifetime. It is a time to be careful and not jump headlong into the fray, a time to "protect yourself" in the midst of a severe financial storm.

2008 Nov 09 08:23 AM

[patio:]

Great article, except for the last line, " But at least you can protect yourself".
Opinions how, please.

2008 Nov 09 09:43 AM

[Royal Scot:]

A most succint and insightful precis of the unfolding financial tsunami we find our selves in.

As Paul Volcker said "It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers."

The economy needs to get back to the fundamentals of creating real wealth, not paper wealth. How? Not an easy path.

2008 Nov 09 09:52 AM

[Lincolnpark:]

A very clear rehash of the crisis, but we've read a lot of those. Casey's recent recommendations have been primarily gold, which has behaved unexpectedly poorly in this recent sell off. I'm with the other commenter asking just what the recommendation is to protect ourselves.

2008 Nov 09 10:27 AM

[jepittman:]

Mr Hornig has done a fine job of educating us on how we got where we are. It is obvious he thinks it will get worse - and he is solidly within the consensus with that observation. He does not however opine on how much of this economic decline has been discounted already by the markets which by definition are discounting mechinisms. Therein lies the crux. There is an old saying 'it is not the snake you see that bites you'. It seems to me this snake has bitten us and is clearly seen by everyone. If there are other snakes Mr. Hornig does not point them out although they doubtless could be lurking. It seems to me we are unlikely to be bitten twice by the same snake, and antidotes have and will continue to be applied.

It will take time for confidence to be restored. In 1987 it was several months, and will centainly be something like that in this case.

2008 Nov 09 12:52 PM

[Roger Knights:]

"Great article, except for the last line, " But at least you can protect yourself". Opinions how, please."

Short the long bond? (I've shorted TLT.)

2008 Nov 09 02:39 PM

[nmelendez:]

Shorts won't work, treasury will cause them to fail. Best choice is hold both, gold and cash. Also commodities, thirld world explosion into a developed country. There really is no clear cut way out.

2008 Nov 09 05:02 PM

[X-15:]

BEARX --is my bet for downward trend in US Market and dollar decline. Plus a basket of cheap Chinese companies that are internally driven not externally--- example HNP (power & dividend), SNEN (natural gas fueling stations), APWR( windpower), SOL(solar component), SDTH( chemicals),JST (transformers) etc etc there are hundreds of great Chinese stories out there--low PE with great potential ...AND potent currency appreciation probability. For what it's worth.

I ain't got the guts to short--like do TBT or TLT -- but love the idea.

2008 Nov 09 09:27 PM

[Steven Hansen:]

this was a great summary article. disagree with the forward economic outlook - but hey nobody really knows anyway.

there is no clear investment path today. all good advise given becomes bad advise in seconds as the economic earthquake rumbles through the world. at this juncture, hyperinflation (or simple inflation) is just a vision on the horizon. enemy one right now is deflation, loss of investment assets by the middle class (causing consumer spending fall), and a worldwide recession/dollar strength (export markets fail).

2008 Nov 09 11:21 PM

[Matthew Shi...:]

This has to be one of the most depressing articles i have read recently. Thanks. Out of curiosity isnt there a contrarian view point out there somewhere?

2008 Nov 09 11:57 PM

[Steven Hansen:]

The Forrest Gump Perspective on the Financial Crisis

Mortgage Backed Securities are like boxes of chocolates. Criminals on Wall Street stole a few chocolates from the boxes and replaced them with turds. Their criminal buddies at Standard & Poor rated these boxes AAA Investment Grade chocolates. These boxes were then sold all over the world to investors. Eventually somebody bites into a turd and discovers the crime. Suddenly nobody trusts American chocolates anymore worldwide.

Hank Paulson now wants the American taxpayers to buy up and hold all these boxes of turd-infested chocolates for $700 billion dollars until the market for turds returns to normal. Meanwhile, Hank's buddies, the Wall Street criminals who stole all the good chocolates are not being investigated, arrested, or indicted.

Mama always said: 'Sniff the chocolate s first, Forrest'.

Quote of the day from a fund manager:

'This is worse than a divorce... I've lost half of my net worth and I still have my wife..'

The bailout, a different perspective

Back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it. They failed and it closed. Now we are trusting the economy of our country to a pack of nit-wits who couldn't make money running a whore house and selling booze?

2008 Nov 10 01:20 AM

[John Preston:]

Where is the plan to fix....there are plenty of weathermen and reporters telling us what jsut happened....this is a great report...but, after all of the reporting....what is the plan to fix it?????

2008 Nov 10 08:30 AM

[1776:]

Prepare for the New World Economic Order

Interest Rates [Credit] are the Cause and Consequence of the Explosion of Income/Wealth Disparities and, Hence, of the Inherent Instability of this Economy:

The Ominous Keynes' Liquidity Trap.
Origin of Economic Chaos.

Everyone Need an Economy, Don't You?

There Is One Solution That Works:
www.17-76.net/

A Credit Free, Free Market Economy
The New World Economic Order.

What Else?...
No One Will Chose Chaos, Will You?

The Only Goal of 1776 - Annuit Coeptis is to Implement It.

Anyone Can Join But Still Needs to Ask for It.
www.17-76.net/

The Purpose Is to Provide Both a New Deal and a New Game.

It is NOT to Fix This Economy Which is Already Beyond Repair.

The Intention Is to Create a New Economy
With the Assets of the Old One Without its Liabilities.

Why Not Insure Against the Worst Case Scenario?

2008 Nov 10 08:31 AM

[Olivier Garret:]

Hello,
I submitted this article for Doug Hornig from Casey Research.
they left off our footer info that informs you how to protect yourself.
Here it is:
Protecting your assets is not just a buzzword anymore, it’s mandatory if you want to keep yourself and your family financially safe in these tough times… which will only get tougher in the near future. To learn more about the smartest ways to invest right now, and to get access to our FREE special report, “The Crisis in Pictures,” www.caseyresearch.com/...

Please have a look...we look forward to hearing from you.
Kind Regards,
Delores Day



On Nov 09 09:43 AM patio wrote:

> Great article, except for the last line, " But at least you can protect
> yourself".
> Opinions how, please.

2008 Nov 10 08:45 AM

[Doug Poretz:]

I agree with much of this article ... except I would urge the importance of thinking to "the next step." I believe that whereas we can point to a number of specific "triggers" for the economic situation, ultimately the situation is attributable to a cultural issue.

Since World War II, people have been innundated with "buy this" messages. The benefits for increasing the efficiency and effectiveness of such messages were obvious, and so more effective communications tools and techniques were developed. I was struck recently by the news over a survey that showed that teenagers who are exposed to more sex on TV are more likely to have sex. That's shocking? Consider what hour after hour, day after day, decade after decade of "buy this" messages have had on our culture as a whole. Over the years, the impact of these messages translated into the culture that led to people over-stretching for their homes, realtors more than happy to craft that deal, mortgage companies willing to finance it, and a retailer out there willing to sell the new furniture on some really great terms ... Hey, let's get a new car for the new garage and go out for a great dinner, we'll put it on the credit card. Etc.

The death of the consumer economy that is upon us will drive many of those who push the "buy this" messages to cut their budgets and find more efficient distribution channels. This will accelerate the trend to rely more heavily on interactive and digital communications (or "new media"). At the same time, with a new political environment in Washington and a new White House promising to "hit the ground running" plus an energized and supportive electorate focused on "change" and a one-party Congress for all practical purposes, there is going to be a surge in "support this" messages from special interest groups of all ilks, sizes, persuasions and motivations. The proposed changes will be way too significant and fundamental for the special interest groups to sit on their hands.

If you look closely you can already see it happening: have you noticed the new TV campaigns for the AMA and for the chemistry industry, for example? When is the last time you saw them advertising? It's the tip of the iceberg.

As this happens -- that is, as the consumer becomes "the supporter," we should expect a major cultural change. If anyone is interested, I write about that sort of thing (from the perspective of a 4-decades long career in communications) at my blog, which is linked above.

2008 Nov 10 09:26 AM

[Gedankonomist:]

The underlying problem here is the SOURCE of all this easy credit and easy cash. (That is, fiat money.)

And that would be the FED. The FED caused the depression in the 1930s and early 1980's. And it caused the current one.

2008 Nov 10 10:56 AM

[svkoho:]

Doug: concise and complete and I think accurate summary of how we got here. The commenters are unhappy with you because you offered no solution. It has not occurred to them that some problems may have no solution. What is the solution to your own immanent death?What was the solution to Hiroshima if you lived downtown? If there is such a thing as a solution to this horrid mess, it's that we must somehow return to productive economic activity and not trading abstract tranches, paper, and leveraged digital bets. We will probably not go back to where we were investing and trading abstract garbage. Despite the fact it is not "productive economic activity" as paulson says, we must let the scoundrels be known, let them be hated, and let them be hunted for the rest of their miserable lives.

2008 Nov 10 12:27 PM

[jack kreg:]

the next step is to move from the financial picture to the economic one, focus on workers and employers.
A global round of tax cuts for all workers and employers, let workers keep more of their own money, leave more money at employers!!
Do you expect that employers will go on a hiring ramp when looking at higher taxes, as Obama has proposed?
Just imagine the economic response to a global round of tax cuts on all workers and employers, in UK, EU, USA and Asia.
That is the next best step.
Tax cuts successfully ended economic downturns in the past, JFK, Reagan and Bushed were successful in ending economic downturns, as well, it is clear that raising taxes on employers and high income workers failed miserably, under FDR, in ending the economic downturn.
We need a global round of tax cuts on all workers and employers!!

2008 Nov 10 12:37 PM

[Boulderbiker:]

I've gone from mad to depressed.....

2008 Nov 10 02:24 PM

[Suziclue:]

RE: Boulder
I'm just as depressed as you are or even worst. I'm not sure if i can make my next payment. Might have to file for bankrupcy. My home price just went below what i owe.. banks are bugging..Take a peek at Riverside! It's disgusting:

www.homepricetrend.com

2008 Nov 11 05:12 AM

[john1:]

Just more unpatrotic negativity from liberals who question America, and freedom.

2008 Nov 11 12:21 PM

[Refuse to b...:]

"No one knows quite what to make of Washington’s response to the credit crisis. Some are howling that it’s socialism, others that it’s fascism or, at best, corporatism, an unholy alliance of private enterprise and the state."

There is a name for our system has become in 2008 - KLEPTOCRACY!

Don't insult socialsim, fascism or corporatism by comparing them to our system.

It is simply not credible that Ivy League educated financiers with decades of experience didn't knowthat 0% down payment, non-recourse mortgages were a bad idea. They knew what the results of their actions would be, but they wanted their bonuses and they knew they could count on the government to socialize the losses afterwards.

2008 Nov 11 07:14 PM