Stephen,

Excellent article. I especially appreciated your explanation of the effects of the Barney Frank and Chris Dood debacle. They were the two primarily responsible for the melt-down of Fannie and Freddie. Both of course Democrats in what was Bush's Democrat controlled Congress.

That and the Fed Res is where the real action always occurs.

I wrote on this subject in oct 2008, here on olo

'Uncertainty is creating and driving fear'
Economics - 21/10/2008

I've since moved on, and am less interested today than I once was, but still believe most of the toxic debt is in the system, If not still on the Banks books then it's with the bailout Governments.

Your article was an illumination for me. Thanks I have occassionally wondered who did what with US legislation after the crisis but never really checked.

Thanks.

Keith Kennelly

Good article

It also highlights the folly of Gavin Putland's suggestion last week on OLO that we should adopt similar lending practices to Fannie and freddie here in Australia:

http://www.onlineopinion.com.au/view.asp?article=11720

I largely accept Stephen Kirchner's article that the US Congress messed up big time with their demand that lending institutions must give uncreditworthy clients loans.

But the Right side of economics is not without responsibility either. Ronald Reagan stuffed up big time with his deregulation of US banking, and the scandal of ENRON, in which corporate greed went out of control, and where public trust in US financial integrity completely evaporated, is also to blame.

Excellent article. Thanks, Stephen.
One measure of government economic competence is the increase/decrease in national debt as a percentage of gross domestic product. In the last 40 years, the US presidents who presided over blow-outs in debt were Nixon, Reagan, Bush Senior and Bush Junior – all Republicans. Those who reined in debt were Carter, Clinton and Obama – all Democrats. One explanation offered as to why Republicans are no good at government is because fundamentally they don’t believe in it.
The one thing they are good at is shifting wealth and income from the poor and middle to the rich. At the end of Bush the Younger’s term, the richest 400 Americans owned more than the poorest 150 million.
So the intriguing question is this: Why do so many of the poorest 150 million still vote Republican?

Rhian, the 30-yr FRM has been a disaster in the US, so it is surprising that Gavin and Sam Wylie have recommended it for Australia. Here's a brief summary of some of the problems it has caused:

http://www.aei.org/article/103322

The US Federal Reserve is owned by a private group of international banks.They have created the GFC just like The Great Depression of 1930's.

Let's have a reality check here.In the last 2 yrs the US Fed has created from nothing,$ 2 trillion that has gone to rescue their mates in the derivative Ponzy scams.This has propped up the Wall St Pyramid scams,but little liquidity has reached the real economy.The result is that unemployment has risen,and no real productivity has ensued.

Congress prints Govt Bonds,which are really a promise to repay debt.The US Fed then creates in their computers,cyber money to equal those bonds.A Bond is a promise to repay this cyber money with interest.This cyber money represents the increases in productivity of the US people.So the real productivity of the masses is then expressed as debt to private banksters.

The modern serfs have shed the iron shackles,only to be enslaved by the debt deception.

We should have never sold off the Commonwealth Bank or our State Govt owned banks.They were creating money from nothing to equal the increases in our productivity.

New money added to our system,should be created as a tax credit and not as debt to private banksters.