There are very smart economists out there who say that the bailout is a bad idea. See: http://freakonomics.blogs.nytimes.com/2008/10/02/john-cochrane-on-why-the-bailout-plan-would-be-a-disaster/

Do I think that something should be done? Yes. Just not this. This bailout plan is a bad idea and won't work (at least as much as I have been able to understand the deal, am I wrong, perhaps, but this is my best understanding.)

Mark Cuban has said this is a bad deal if there isn't significantly more oversight AND if we don't know who will be in charge in January. See: http://blogmaverick.com/2008/09/29/the-bailout-question-that-must-be-asked-before-passage/

Do I think that the Representatives voted for these reasons? No, they voted for populous and silly reasons. But that doesn't change my opinion of the final outcome.

I am very open to being correct. If these experts are wrong please, please tell me. This is not being snarky. I just don't know enough and so far I'm trusting the experts I've cited, if you can point me towards those who I should trust instead (or can explain it yourself in a more convincing manner) please do so.

(Note: Warren Buffett doesn't count, he's got too much of an interest in the bailout going through).

PL: As to the first, this is a gun to the head moment. There is no time for a plan that would allow for continued bank failures, nor is a run of failing banks the sort of news we want to be telecasting to the rest of the world. Part of this mess is psychological - a large part. The appearance of control is almost as good as actual control. You've read all the articles about how Japan's hand-wringing over what to do and lack of decisive early action sent its economy into a protracted tailspin. If we take a long, complicated, reactive approach like the one advocated in that first article, all we'll do is cripple the bankruptcy courts and allow our already fading credibility to crumble to nothing.

As to Cuban's article, there's a lot of rhetoric and cynicism, but little heft to it (I know, I know... I'm throwing stones from a glass house with that criticism). I think in an Obama administration you'll see Bob Rubin, Clinton's Treasury Secretary, return to the post. As able, if not more able, a hand as Paulson. Call him what you will, Bill Clinton was our last good moderate Republican president. I have no issues with Rubin or someone from that administration taking the wheel, and I think putting someone like that in place would do a lot to calm the world markets.

As to his comments on oversight, there will be considerable oversight of the Secretary. That, in my estimation, is paranoia.

His comments about one month oversight board meetings baffle me. The last thing we need is to have this rescue plan turn into a political circus where people are spending their time getting ready to posture for public meetings and not get down to the business at hand. That's precisely why Paulson asked for such broad power. What's political is slow and what's slow here tempts a terrible fate (look at Toyota's sales figures from the last month).

I agree with all of his comments about JP Morgan and BofA getting way too large and the need for more transparency.

The prime issue here is speed. The plan on the table is the only one that will ever get done in a timely enough fashion to avoid considerable pain to us all. It's imperfect, no doubt, but right now it's the best we have. And there's no time on the clock for another play.

Hopefully ignorance won't prevail.

PL: I trust the House like I'd trust myself to perform surgery.

you are wrong. if the measure passes we are merely reinforcing the housing markets inflated values. if an economic depression is whats needed to bring supply and demand back into balance, then so be it. a free market does work when you give it a chance.

PL: That's ideologically true, and practically horrific. I like Friedman as much as the next guy, but the flaw in blind adherence to free market theory is failure to assess just how protracted and painful the period of creative destruction will be. Stated otherwise, I'm not willing to sacrifice what you are to learn that Friedman's views hold true in a worst case scenario.

Long time fan. Looking forward to getting a copy of your book.

I agree to a point, but there needs to be more punishment, so that this type of thing doesn't happen again. We need more regulation. There never should have been such a thing as an 'adjustable rate mortgage'. I've never taken out a home loan, but I know if I'm sitting in an office, and a man in a fancy suit says to me, 'well we can set you up with an ARM, which means you pay __% today, but we can change it later if we want. We probably won't, but legally we can ', then the meeting is over. Main street failed by trusting these smoothies in suits. So in that regard, I agree, it's both sides fault.

I'm not completely sold on the buyout still though. It just seems to me, like throwing credit on top of a situation caused by too much credit. I think credit needs to fail a little (only to a point though), and people need to be more encouraged to get back to a save and spend style of personal finance, rather than buy everything on credit model.

Looking forward to the conclusion of 'The Farther We Go, the Rounder We Get'

PL: I agree and I think credit will fail a bit. This plan won't bring us back to where we were in regard to ease of credit procurement, which is a good thing. We're going to contract in that regard, which will bring needed pain to Main and Wall. Thinking things over and debating alternatives, however, is the equivalent of doing nothing. Remember the scene in "True Romance" where Walken's character says to Hopper, "What I have to offer you, that's as good as it's going to get"? That's kind where this thing is right now, I think.

As to the "smoothies in suits," the roots of the problem here are:

1. Fee income (mortgage brokers getting commissions and fees at closing and not having to give a damn what happens down the road);
2. Short term bonuses (securitizers getting paid to package and sell crap securities and reap bonuses so large they didn't give a damn whether the house of cards they were creating fell down because they were making enough to retire on, handsomely, in the run-up);
3. Affluenza (everybody suddenly thought he or she was entitled to, or at least could afford, the house they wanted); and
4. Ignorance (sadly, a lot of people don't understand mortgages... perhaps we should have required that every subprime mortgage or 80/10/10 or 80/15/5 loan package have big bold letters spelling out what "reset," "floating rate" and "ARM" means).

By the way, you don't have to call yourself "respectful dissenter." Swing away at me. I'm no economist.

I've been an AC/DC fan as long as I can remember (the band not "ac/dc" in the context of chicks that swing both ways, I've dug bisexual chicks since my late teens which was subsequent to developing an affection for Australia's favorite bar band) and this morning, listening to the Bonfire box set it finally hit me... The Brian Johnson fronted AC/DC isn't really much more than a cover band that sounds like the Bon Scott fronted AC/DC. I realize that this is a pretty bold statement considering Back In Black is AC/DC's definitive mainstream album. But there really isn't a comparison in sound density or intensity between the '74 - '80 AC/DC and the currnet incarnation of the band. But then again, maybe it was the loss of Cliff Williams and not Bon Scott... PIZZA PIZZA

PL: No fucking way... You couldn't be more wrong. Not about the bisexual chicks (I've seen your "art photo" collection). On the Bon vs. Brian thing.

Bon era AC/DC was like a heavy version of the Stones. The tunes had swagger, groove. You could dance or even fuck to that stuff. It was also great music for smashing the living room furniture. It walked the line between really high and low art at once. I can't say it enough - "Powerage" is one of the best records I have ever heard.

Johnson era AC/DC is an entirely different band. The band was spongy with Bon. They missed notes, the production was off at times and they were loose. Johnson's stuff was polished pop metal. With the exception of "Rock N' Roll Ain't Noise Pollution," there isn't a loose moment or errant note on any of the Johnson records. "Back in Black" is a weird record that blends the best of the two. Once Johnson's influence took over on FTATR, the band got waaaay too heavy, IMO. I'd use the analogy of the Allmans pre and post Warren Haynes. I love the old, smooth stuff with Duane and Dickie trading leads, and then Dickie alone taking up all the slack. Warren's too perfect, too heavy. I dig him in Govt Mule, but I think he fucks up the Allmans' sound.

I also don't think Johnson sounds much like Bon at all and have always wondered why people say that. I can't see any similarity in the voices. Bon had more of a mid range, with a goofy squeal at the top. Johnson has a ridiculously high squeal and a heavy low register and nothing in between.

Cliff Williams is still with the band, by the way. I think you're thinking of Phil Rudd, who left for a while in the 80s due to "exhaustion."

Speaking of this, check out their new video. It's juvenile, but it's catchy, and fuck... We should all hope to be doing shit like this when we're 60.

http://www.acdc.com/acdc101/

Is there a band that's managed to use the word "rock" in more song titles?

The hedge fund capital is out there to buy these same poisoned assets, maybe not 700 billion, but certainly 400. The only problem is no one wants to sell their bad securities for 20 cents on the dollar because they expect the government to come bail them out. Maybe 20 cents on the dollar isn't enough, and the banks will go under if they sell at that price, I don't pretend to know the answer, it just seems like a free market solution exists that won't plunge us further into debt and won't create a ton of moral hazard. Merrill Lynch saw the writing on the wall, sold for fire sale prices instead of sticking it out and waiting for government intervention, and now they look like suckers.

What I cannot understand is that every Newsweek and Time Magazine article for the past 8 years has warned of a housing bubble, but somehow none of these financial companies full of Sloan grads thought to plug the variable of a housing crash into their computer models. To an observer it is baffling. To add to the list of people to blame are the so-called bibles, Moody's and S&P's who's ratings should now be taken with a huge grain of salt.

PL: I understand your point, but I think the thinking was the market was never going to develop, or it was going to develop way too late. This was a timing thing.

"Models" is part of the problem, I think. Clearly, none of these people (save John Paulson) had an idea of what was going on at the street level. What a joke mortgage brokering had become and how there was a frantic game at hand in the industry to sell, collect fees and flip this shit into the securitization system as quickly as possible. Once there, the game was package and sell asap, pocket bonus money. Repeat indefinitely until house of cards falls. Get laid off. Retire to something easier with millions in the bank.

Proof of your skill my man... you tell me I'm completely wrong and then agree with me... Well played! I was actually thinking of Cliff Burton leaving the band. As I recall, he sort of "went out the window". And as you know, I could be more wrong... We'd just have to broaden the scope of my wrong-ness a bit! Aurora Borealis... PIZZA! PIZZA!

PL: "...The icy sky at night." That song always baffled me. Neil was going to trade some pelts to sleep with an Indian chick? Sounds a little fucked up for a reflective tune. Then again, I still can't figure out what the hell "Powderfinger" is about, so...

I'm rethinking your stance on Rick Rubin being a better Secretary of Treasury than Bob. I think that holds merit. I can't explain yet, but I will...

Once you're really, really wrong you become right again. You should buy the Maserati. You can only truly take hold of your finances by completely smashing the "repayment" paradigm.

The plan is imperfect, but those that complain miss the boat on the need for a (relatively) free flow of credit. A simple example - Auto sales:

Auto dealer has vehicles that need to be sold, in order to pay their expenses, including administrative and sales force. Profit per vehicle is less important than moving vehicles due to automaker's sales incentives to dealers. So dealer cuts prices to keep up sales.

Buyer has a need or desire for a new vehicle (again desire or need unimportant). Buyer has decent credit rating (say 680 FICO) and is willing to buy at good price, within their means, with substantial down payment. (say $18,000 car with $6000 downpayment). Buyer needs some financing to cover remaining purchase price.

Lender wants to obtain buyer as customer because buyer is a relatively good credit risk and vehicle, even after initial depreciation, will have equity, so risk again is moderate. Lender, however, is unable to access other credit markets to distribute its risk, because credit markets have seized due to fears about bank failures.

Lender is unwilling to dip into it's cash reserves (partially federally mandated) because this would put them at a less capitalized position than its competition, who is only willing to lend to customers with perfect credit. (730 plus FICO).

Lender doesn't lend to buyer. Buyer needing a vehicle buys a used one on private market.

Buyer feels as if he is unable to trust banks because they don't trust him, even though he has (relatively) good credit.

Auto dealer is unable to sell cars. Still has overhead. Gets no incentive from auto maker, and has to lay-off employees, if not shut down business.

Auto maker has unsold cars sitting on lots and auto dealer is not ordering new ones that auto maker is producing. Auto maker now has to store cars, and reduce production because nowhere for cars produced to go. Auto maker then has less need for employees. More layoffs. Auto maker still has pension and other fixed costs, regardless of volume, that must be made up by raising prices. $18000 car becomes $19000 car, causing less buyers to be qualified to purchase or able to buy... All because lender has tightened credit because credit markets between banks and lenders have tightened.

This is what happenned to one of the largest auto dealership chains in the country (also in part due to the market they were targeting). Bill Heard (i.e.):
http://www.ajc.com/metro/content/metro/stories/2008/09/28/bill_heard_dealerships.html

Three sources take top blame in my opinion:

1. Mortgage lenders for creating and selling gimmick mortgages (often called sub-prime) and approving people who would never be able to pay the actual full payment when it became time (ARMs or pick-a-payment mortgages).

2. Home purchasers who were too foolish/stupid to realize that they were borrowing an amount that they could never hope to pay off. (don't say you were fooled, you signed the deal without reading or understanding)

3. Investment bankers who packaged sub-prime mortgages and sold them as securities (mortgage backed securities), to their own institutions or to other financial institutions. Are you telling me these guys never thought that real estate prices might correct? Even a moderate correction of 20% was bound to make these "securities" a terrible failure.

Pass the damn bail-out. I am one of the group of people who has the most to bitch about (having not been part of any one of the 3 problem children above). The potential impacts of no suring up credit markets are greater than the "real" downside of the bailout.

PL: Agreed and, thankfully, they did.

I don't doubt that this bill will benefit the economy in the short-term, I just worry about the precedent it sets. Say Obama gets elected, passes a bunch of restrictive, mostly ineffective regulations on Wall Street. The economy stagnates (as it will if McCain gets elected as well) and 4-8 years later Republicans start screaming for deregulation. They get elected, the economy does great for a couple years until the next bubble bursts. What happens if it takes 5 trillion to return liquidity to the markets this time?

It's pathetic hearing politicians on both sides talk about how they're going to clean up the market when they clearly have no idea what a mortgaged-backed security even is. As some one who opposed the bill and sleeps under a picture of Milton Friedman, even I have to admit some regulation needs to accompany this bailout, but the question is does anyone have a fucking clue how to regulate the industry. What happens in five years when some one invents a more complicated package of securities with values even harder to assess? Christ, AIG had heavier government intervention than pretty much any company in history 3 years ago and we all saw how that worked. Yeah, we've staved off recession for the next 6 months, but haven't we just made worse the inevitable day of reckoning?

PL: I think I said this earlier, but if I haven't, this is just a bridge loan to the next bubble. I think the idea is to break up the ultimate reckoning into as many small corrections as we can. But you're right. The ultimate problems with this country and our economy aren't going anywhere.

My last post must have somehow gotten lost in the "series of tubes" that make up the internet (one more cheap shot at a senator today...). Was drafted before the vote....

PL: I figured that. I use old transistor tubes in my interwebs connection, so it tends to run slow.

Since the nexus between the greed of lenders both in the banks and on wall street and the borrowers who couldn't afford any market downturn has already been highlighted, I'll point out one other thing.

I am a huge Ron Paul fan. Let me start by saying that. I love market theory and, while I am no economist either, I can certainly recognize the effect that Fannie Mae and Freddie Mac have had in foreign investments in these ARMs that were bundled into securities and really guaranteed by the government. That's the problem. Greed has its place in the markets, but so does shrewd calculation. Anytime governments step in and guarantee large market investments, you are in for trouble because people are going to invest in what they see as a sure thing, and what is more sure than something that's guaranteed by the U.S. Treasury?

Combine that with the Fed. pumping up the supply of cash (inflation) and trying to lop off the bottom of the business cycle by dropping interest rates every time growth showed signs of slowing, and there you have it, the perfect environment, created by government, for a disaster of this magnitude.

If this bailout goes through, the Fed has to raise rates, or they will be merely prolonging the problem. Also, if the bailout goes through, there needs to be a provision to freeze foreclosures and renegotiate, even if its for Tokyo-style 100 year fixed rate mortgages, or else the bailout isn't gonna keep people off the street and the middle and lower class still won't be able to buy things. It might be a better idea to give half the money to corporations and cut checks for the other half to each one of us, to inflate our currency to offset the effect that ARMs have had on real property value, and then outlaw ARMs.

Whatever, but two things are for sure, (1) this couldn't have happened without the interference of government in the marketplace, acting as a guarantor, and (2) if anyone making under about $150,000 a year in today's dollars wants to buy a house in the next decade, land values need to come down or the value of the dollar needs to come down.

PL: Oh, I think we're going to turn into a loan workout nation. There's no way to deal with the glut of inventory in the traditional foreclose/appraise/auction scenario. Shit, most of the foreclosing parties can't find the loan papers.

I think we'll see 40 and 50 year mortgages down the road. Somebody will find a way to sell those to really young buyers and because we'll need a new bubble, the regulators will find a way to let it become a growth industry.

As someone twice forced to overpay for a home, I couldn't agree with your closing points more.

Jesus. Thank you for writing this. I live and work abroad, so thankfully I don't have to suffer directly for the stupidity of my very own elected officials, but personally, I'm amazed and thrilled that someone in Bush's administration has actually opted to take preemptive action to fix something.

At any rate, the quintessentially American shitstorm over who we can blame and/or sue for this hasn't started yet, but dammed if this one won't be interesting. So many guilty parties - commercial lenders, investment banks (after all, who could have ever envisioned that a 1:25 capital to leverage ratio might become a problem!?!?), politicians (Garn-St. Germain, anyone?), private equity, ratings agencies...the list goes on and on. And the best part - it was all legal. No investigation required; ladies and gentlemen, what we have here is the result of a perfect storm of market conditions, horribly conceived deregulation, and of course the everlasting abundance of idiots on the demand side. Amazing. I'd almost give my left nut to be in on the conferences between Bernanke, Bush, and Paulson. Watch - this bailout will be a disaster, a poorly-administrated giant dead fucking albatross around the taxpayers' necks for the next four or five decades; you can be guaranteed Bernanke knows that - but as you said, better than nothing.

Interesting times we live in. Pre-ordered your book, by the way.

PL: Ah yes, the immediate knee-jerk reaction of the Ugliest Americans - LITIGATE!

The fallout in our courts will resemble a bacterial feeding frenzy on the inside of a toilet bowl. Sad, really. Thankfully, there'll be no money for any of the parasites pointing fingers at each other to grab. One thing I believe is those $700 billion dollars are going to disappear as quickly as they're handed out.

I disagree, however, on the administration. I think Bernanke and Geithner will shepherd that a lot behind the scenes, and I think they're better in these waters than Paulson. Paulson has performed admirably under insane circumstances, but he's starting to look overwhelmed. Of course, if his successor is an idiot, we're fucked. If he's crazy enough to keep the job, Obama should keep Paulson on for a while after he takes office. Just to give the appearance of continuity, if nothing else.

Thanks for the pre-order.

I disagree with your belief that Bob Rubin will take control of the Treasury in an Obama Administration and calm the world markets. While I support Rubinomics, it existed in a vacuum that is no longer there. Clinton was able to balance the budget because he had Newt and a Republican Congress to keep him in line. In addition, Clinton was a centrist while all indications suggest Obama is far to his left. The combination of a leftist president and undivided government will never allow for controlled spending or a balanced budget.

Furthermore, with his support for an increase in the capital gains tax Obama has announced that he will manipulate the economy to pursue social goals, regardless of the cost. This is this type of experimentation, by Congressmen such as Barney Frnak who removed regulation becuase they didn't like that low income people were not getting mortgages, that enabled the current crisis(I had an econ professor who told us that they don't let economists test their hypotheses becuase they have real consequences. Too bad that wasn't extended to politicians). Earlier in the campaign Obama threw economic advisor Austin Goolsbee under the bus for quietly suggesting Obama wouldn't really revisit NAFTA. What makes you think he would empower a Clinton holdover to run his economic policy?

PL: Obama is a centrist now whether he likes it or not. He'll be a "progressive," but any hope of a new "liberal" state is over. Naomi Klein might be right in "The Shock Doctrine." Bush may have spent the country so far into the floor Big Govt liberalism becomes unrealistic.

There are millions of hyper-stretched middle and upper middle class people in this country. If Obama slaps a substantial tax increase on them I think you will see a silent tax revolt wherein people will stop working. A friend mentioned something interesting me about an article in the New Yorker, I think, titled "Obama's War on Women" or something like that. The gist of it was that in two earner households where the husband made $200k or so and the woman earned another $100k, women would have little incentive to keep working because most of their salary would be going to Uncle Sam. I think it's a flawed argument, but it demonstrates a real point - increasing taxes on people causes them to work less, or "treat" their income in certain ways (running more of their expenses through their businesses) to avoid the taxes.

I don't see a future of high tax increases. I see a future of deep, nasty cuts and some attempt at a new WPA program to shore up infrastructure.

As to globalization, it's too late to turn that train around, whatever Pat Buchanan thinks.

You're making one gigantic assumption here: that this plan will actually achieve its stated purpose. I do not wish to get into an argument on the specifics, but there are many smart economists out there that I like and respect who do not support this plan. Most are vehemently opposed and this can be noticed from the U of Chicago letter to congress signed by over 150 economists. There are many problems associated with its implementation which have not yet been fully considered or worked out. How much does Treasury pay for these securities? How is this monopsonistic market to function?

I also do not know why there were no hearings with congress interviewing various experts to get their opinion on the plan. To say that this bill was steamrolled through congress like the iraq war would be a disservice to the lead-up to the war.

I'll link Arnold Kling, a guy that I've read whom I believe to have a very educated and familiar perspective concerning the recent bailouts of AIG, Bear, Fannie/Freddie (he worked at Freddie for a while), and this $700b package.

His blog: http://econlog.econlib.org/
Two interviews featuring him explain the situation from his point of view: http://www.econtalk.org/archives/2008/09/kling_on_freddi.html

http://bloggingheads.tv/diavlogs/14744

To be sure, there are many other sober minds who have written on this bailout. Kling is by no means the definitive authority on all this--no one can be--but I definitely believe his views are worth pondering.

PL: I have nothing but the highest respect for the Cato Institute. Hell, PJ O'Rourke is one of my favorite writers of all time. I also respect Friedman, deeply, and think he's ultimately right - the market is the only dignified way we can conduct an economy.

But we have never had a real free market. We have massive entitlements and New Deal style programs and govt interferences throughout our society. I'm not shocked the University of Chicago would take absolutist umbrage to the plan on both merits and ideology. But when Kling says things like, "We'll have crony capitalism," I'd remind him - We Already Have It. The Iraq War? Our Mercenary/Defense Industry? Bechtel? Kellog Brown & Root? The legions of unfireable seat warmers in govt jobs in this country, getting Cadillac-level benefits and early retirement on our dime?

We're not a true free market economy. We never have been and frankly, I'm not sure any country ever has been one. We can't allow one entire industry (the finance services industry supposedly makes up 10% of GDP) to contract by two thirds, particularly when it's the industry through which we most interface with other countries in the global economy. And most importantly when it's the industry whose health effects the supply of essential credit flowing into every other sector of the economy. I don't think this was a time to stand on principle. We had to buy time. I'm not sure it will work, but I know this. It can only make the inevitable crash, should we have that, a little less tremendous.

As Kling admits, we aren't likely to suffer catastrophic losses on the deal, and as I noted earlier, and I think most pragmatists agree, a modest loss here is a win. We're buying a future that we can't predict. If we did nothing we were acquiescing to a horrific continuation and worsening of an already dire present.

I'm relieved that the bailout bill was passed. I think everyone who disagrees with it "on principle" is underestimating the impact of frozen credit markets. (Or simply doesn't understand their importance. Unfortunately, while credit markets are critical to our economy there isn't an easy measure of them--like the Dow or S&P for equity markets--that the public can understand at a glance.) I just hope that, when we find out all the details of the plan, it will be able to do some good.

That being said, I don't think it's enough to stave off a global recession. I've been hearing that while some of our banks are "too big to fail", some of Europe's banks are "too big to save". I read a research piece a few days ago that calculated the notional value of Deutsche Bank's liabilities at over 80% of Germany's GDP. I can't recall the number for UBS/CSFB in Switzerland, but it's similar or larger.Europe is going to be a complete mess very shortly, and it doesn't seem like there's much they can do about it.

Also, if we're talking music, I can't recommend "The Closing of Winterland" from the Grateful Dead highly enough.

PL: We're heading into a protracted global recession. There is no doubt. This measure was merely an attempt to keep us from spiraling into a panic.

As to what you've written about Europe, I have heard some rumors that it's a disaster eclipsing ours, and the England's housing boom made our fiasco look tame. I can only hope that Roman Abramovich and a few other oligarchs decide to pool their money and buy, say, all of England, and maybe Germany. Putin's got what? Forty, fifty billion in personal wealth to throw at the deal?

Perhaps we should sell him back Alaska.

By the way, did you hear Palin comment on Alaska's wealth fund during her debate? Something like $32 billion? Why don't they buy stakes in a few of these teetering banks?

Well, perhaps because they're smart.

You know, I've almost bought the Closing of Winterland several times. Don't know why I haven't. Thanks.

Thank you for writing this. All of this reference to "main street" and "my daughter will be crushed under the weight of this 700billion" is so idiotic. And then the talk of "well economists I've spoken to don't think this plan is a good idea." Economists are a bunch of jokes. Talk to a trader. Talk to someone who has to commit capital on a daily basis, take on risk, and weigh all possible outcomes. If the rescue plan hadn't gone through it would've been armageddon. Me and another trader were just staring at the TV blankly on Monday in complete disbelief when it got voted down. I nearly shit a winnebago on Friday when the vote came to the floor. We're still in pretty dire straights with credit too. We're gonna need the Fed and ECB to cut rates to try to unlock credit further.

I just wish some politician would get the stones to tell the american people that they are just as culpable as wall street, because of their run away spending habits, massive amounts of debt, and general disregard for fiscal conservatism.

PL: What do they call the study of economics? The "dismal science" or something like that? It'd be better described as the hopeless science. I agree with you. This was a situation where we were offered:

a. Bullet in the head right now; or
b. A running start.

Which do you take?

Thanks for writing this. I've given up newspapers and televised news and had been looking for a solid explanation of why it was needed. There's lots of information on both sides but your piece cut through a lot of the self serving bullshit.

I believe economics is referred to as the dismal science, I'm not so sure about "the dark art".

Also, just in case you've been too busy to keep track of these things, there's a new edition of the Bob Dylan bootleg series coming out on Tuesday. I was thinking of one of his songs recently in respect to this economic crisis.
From "Ain't Talkin'" on Modern Times

"The whole world is filled with speculation
The whole wide world which people say is round
They will tear your mind away from contemplation
They will jump on your misfortune when you're down

They will crush you with wealth and power
Every waking moment you could crack"

But then again, with the depth and breadth of Dylan lyrics, you can usually find a line or two to support any opinion.

PL: "Dark art"... Good call. WTF was I thinking?

Our media's almost entirely full of shit. Ignore both sides and find a middle ground and that tends to be the most sensible position.

I'm buying the Dylan thing, of course. I have to pick that up along with the new Metallica disc, though I'm wondering if I should buy the Metallica thing from Itunes instead. I hear the mastering on the disc is really bad.

Simply put, great article.

We now live in a nation of sheep addicted to spending cash on lifestyles far beyond their means; a nation of spenders with little to no net worth who have gone into extraordinary personal debt. The fact remains that few Americans are financially literate, let alone have the skill set to understand financial markets and the complex financial products that have helped drive this country to into a ravine. As a people, we like to claim that we are the hardest workers in the world. That is all well and good, except it's not true. Now you may be sitting there reading this, saying fuck you, I work 40+ hours a week at an honest wage/salary, that isn't enough? Of course it's not. Working hard doesn't get you ahead. You need to work smart. And simply showing up to work and collecting a paycheck doesn't make you a hard worker, it makes you like the other tens of millions of employees in this country.

The real question to ask is what else can I do to get ahead? Odds are you come home, watch television, cook dinner, jerk off, go to sleep and do it all over again. Unfortunately, you need to do more than that. For example, where were you for the last couple years while banks and mortgage companies were giving away loans to unqualified individuals and families? Where were you as you watched home prices soar into a bubble? Didn't you read about homes being bought in the morning and sold at a premium in the afternoon in South Florida? Surely you must have thought yourself, this sounds unreasonable, perhaps a bubble is forming. Maybe I should do a little homework about this, no? Will my investments be affected in the next year to five years? If so, how? What will happen to these financial companies who are creating these complex financial tools with little to no oversight? I mean, it wasn't a secret that Wall Street was doing this. Banks who were "hedging" themselves with other banks' CMOs and CDOs were simply buying other toxic assets. What did we think was going to happen?

To the people complaining about the current state of affairs, how many went home and said, I'm going to read about financial markets? I want to understand how these giant financial companies are structured and how they make their profits. And most importantly, what are the incentives of those CEO's and top corporate management teams? Maybe it's time I look into my investments to see where they are and how they work. What are bonds? How can I protect my nest egg? More over, how can I profit from a downfall of stocks and the financial system? What is shorting? What are options? How can they be used to hedge or even profit from a downturn. No one has stopped you from doing this, yet so many Americans chose not to educate themselves.

Fortunately I feel very lucky that I am only 23 and got to witness the Internet bubble, corporate scandals, and the credit crisis. It only serves to reinforce my investment strategy from those who are looking to make a quick buck while exposing themselves to massive losses in the event of a downturn. Don't be fooled. Do your homework. Invest in yourself and don't follow the pack. We have all seen what happens when you do.

8 days until the book, can't wait!

PL: Simply put, great addendum. I'm not commenting because I don't have anything to say except "I agree."

it may not be of total relevance in the case discussed here.
but i would invite you to watch "Money as debt" wich resume very well the way the banking system and as a corelary how economy works.

http://www.youtube.com/watch?v=vVkFb26u9g8

PL: Will do. A bit busy right now, but I will get to it.