The doom merchants are correct. The US is toast and our turn comes next as the property market corrects down 40%. As we try to grow our way out of it we will slam into the ceiling of static/declining world oil production. Goodbye world economic growth - forever. Read about it here:

http://postcarbon.org/end_growth

Thanks for a good article on this debacle.

Apart from political backflips and quick-fix 'solutions', what sticks out in the current fiasco is the fact that so few professional commentators have a clue about causation let alone possible remedies.

Likewise, financial advisers flounder. Their computerised advice manuals are rendered worthless when the rules become redundant.

One thing that we can be sure of: for all the many millions of losers there will be winners somewhere rubbing their hands together.

Hmmm. Milton Friedman argued for control of the money supply as a key weapon against inflation. Lack of control of the money supply is one of the underlying causes of our present difficulties. Von Hayek argued against exactly the sort of central planning that saw Jimmy Carter, Bill Clinton and George Bush intervene in mortage markets to provide loans to people who had little or no chance of repaying them.

There's no doubt that George Bush is one of America's most incompetent Presidents. Low taxes and high government spending, financed in the main by China, was never a sustainable economic model. If anything, it demonstrated the power of Friedman's insight about the importance of the money supply. To link Friedman and Von Hayek with the irresponsibility of George Bush really demonstrates the authors' lack of knowledge more than anything else.

The sad thing is that these authors have some responsibility for the education of young people. I hope their classes are more factual and less ideological than is this article.

Senior Victorian “The sad thing is that these authors have some responsibility for the education of young people. I hope their classes are more factual and less ideological than is this article.”

Agree

The article is a bunch of hogwash.

Anyone who relies on Chomsky for references is a dill

But what do you expect from a pair of social scientist (engineers) used to dealing with the fluff and fables of human feelings and unused to the grit and crunch of finance.

Sure the economics processes have produced an acute and serious problem but the system is designed to prevail over problems, even if the chicken littles of social science see the sky falling in (or maybe it is ‘entryist’ wishful thinking on their part).

Is this article an example of the bias that the Young Libs have complained about?
No doubt they believe that Australia by itself can mitigate climate change as well.

Thank you authors for your insightful commentary.

Col Rouge

"But what do you expect from a pair of social scientist (engineers) used to dealing with the fluff and fables of human feelings and unused to the grit and crunch of finance."

As usual you attack the messenger and leave the message to shine all the more strongly for it. If it's such a load of 'hogwash', let's have some informed rebuttal on your part. You've been quick before to gloat over what you make selling your financial wizardry to others. We all know you're part of the 'grit and crunch of finance' (great description by the way, couldn't have described it better myself, though I might have changed 'grit' to 'dirt'), so here's your chance. You tell us what we in the social sciences are too fluffy-headed to know.

Senior Victorian

"To link Friedman and Von Hayek with the irresponsibility of George Bush really demonstrates the authors' lack of knowledge more than anything else."

The authors didn't specifically link Friedman and Von Hayek to Bush. They described them far more broadly as the 'philosophical mentors to neo-conservative Washington', which is a perfectly apt description. Bush alone is not responsible for this current debacle. The US has been set on this course for several decades under presidencies of both persuasions.

"Von Hayek argued against exactly the sort of central planning that saw Jimmy Carter, Bill Clinton and George Bush intervene in mortgage markets to provide loans to people who had little or no chance of repaying them."

It's always ideologically convenient for free market believers to blame government. The vast majority of these loans went bad due to bank greed and corruption. Government directives, which I keep hearing mentioned but as yet have seen no direct quoting of, had little if anything to do with it. If you're still not convinced, try and catch a repeat of last night's Four Corners. It's spelt out plainly and clearly enough for even the most diehard free marketeers to have pause for reflection and to just maybe stop sinking the boot into the victim.

Bronwyn

My point is that to describe Von Hayek and Friedman as 'philosophical mentors to neo-conservative Washington' is neither apt nor accurate. Both economists opposed the sort of economic mumbo-jumbo that Bush - and Reagan for that matter - practised. You simply can't increase the money supply, as Greenspan and Bush did after 9/11 and not have the asset price bubble we have experienced.

As to 'free markets',such a thing does not exist in the OECD. All markets in OECD countries are regulated. The point, as Lindsay Tanner said recently, is to have effective, well targetted regulation rather than regulation for its own sake. From my point of view, good regulation promotes transparency (for example, no insider trading) fair competition and individual choice. What we've had in both the US and the UK is burdensome, vague, poorly drafted regulation and particularly silly accounting rules, which have made the current crisis worse.

This is the time for all the intellectual Lilliputians to raise their head. Before our two authors send to the gallows Milton Friedman and Frederick Hayek, they ought to be reminded of some facts. The dragon teeth that mauled the only system that brought relative prosperity to the peoples of the world were spawned by government intervention in the first place. Roosevelt’s creation of the publically funded Fannie Mae, and many years after its twin Freddie Mac, the Community Reinvestment Act, under Jimmy Carter, and which was resurrected By Bill Clinton, were all the offspring of government intervention. They were the putty in the frame of social engineering by which all Americans would have realized their dream, to have and own their own homes. Fannie and Freddie were providing the easy loans and the ...Reinvestment Act were enforcing bankers to render their credit services to all and sundry irrespective of the financial position of the borrowers. And the whole saga of the subprime loans was resting on these rotten foundations.

Hence Wall Street collapsed through the derivatives market multiplier leveraging founded on the subprime loans by which the moguls of finance made for a while their ephemeral profits. And this collapse released the nightmare that was always embedded in the dream of mass home ownership when it became evident that many ordinary Americans were not only going to lose their homes but also their jobs all by the grace of government intervention.

http://kotzabasis4.wordpress.com

Ouch, Ouch, Ouch, Now that US economist Paul Krugman has won the 2008 Nobel Economics Prize, will the left accept fact over fiction.

Dallas:

<<Now that US economist Paul Krugman has won the 2008 Nobel Economics Prize, will the left accept fact over fiction.>>

In times of real crisis, I thought we might be able to put the old cliches and false dichotomies aside (left/right; fact/fiction) and stick to the fundamental issues: what's caused the crisis and what's the most effective way of dealing with it?

Themistocles,

would you mind bringing to light exactly which pieces of government regulation compelled Wall street to engage in such dubious lending practices. This went way beyond freddie and fannie.

The particular regulation you speak of is in fact, a failure of US governments to be able to think/act outside the box of free market ideaology. Housing trust/commission housing is one effective way of providing a roof over the heads of those unable to otherwise afford it. The problem is that the US has the most extraordinarily paranoid terror of anything that might be even vaguely regarded as "socialism".

So they looked to the market to solve a serious social problem that was created by the market in the first place ie freer markets demand loose labour standards resulting in a large underclass of working poor at the bottom. A market driven bubble in the price of the commodity (if you can really call it that intrinsically)that fullfills the fundamental human need for shelter from the elements and a safe, stable place to live and have a family only exacerbated the situation.

Bronwyn,

I watched the Four Corners “EXPOSE” on Monday night. I almost lost it, when they presented their hard luck story who had a McMansion on 2 hectares, with 100,000 dollars worth of motor vehicles out the front, and who purchased a ARM loan, and then found out he couldn’t pay.

And you have the hide to call these people victims. They are no more victims than the banks are of their own greed. These people saw easy money and they took it without thinking about how they might pay it back.

Caveat Emptor should be stamped on the forehead of some of these utter morons. They are as much a cause of the mess we are in as the banks are. Now I’m not saying every single mortgage seller was entirely truthful, but the overwhelming majority of people simply did not read the fine print, nor did they get advice. Banks can't make people take out loans.

Second, you want to pretend that the role of gov’t in this crisis is not relevant. Yet Fannie Mae and Freddie Mac accounted for the majority of loans held by Americans. Their politically appointed board members were instructed to give loans to low income people, who never had a hope of paying them back.

>> “Following their mission to meet federal Housing and Urban Development housing goals , GSE's such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have strived to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment... and the continuous availability of mortgage credit under a wide range of economic conditions." http://en.wikipedia.org/wiki/Fannie_Mae#The_mortgage_crisis_from_late_2007

The primary focus for Fannie Mae, operating under a government directive, is to provide the maximum amount of help to lenders in making mortgage loans to the low, to middle, to moderate income families across America. Fannie Mae is also involved in a nation wide effort to join with lenders and community partners to create even more homeownership possibilities. http://www.getlowratemortgage.com/info/how_does_fannie_mae_work.html

The sky would be falling in Col, if it weren't for taxpayers chipping in to hold it all up by injecting enormous amounts of money. What is happening at present is not free capitalism at work, but old fashioned government socialist intervention for the greater good.

As for the constant carry-on about that this is all about 'giving home loans to people who have no hope of repaying them'. What about a view that the vast majority of houses are over valued and that is why it is increasingly out of reach to an ever growing number of people? Which, if the economic times where so very good really makes no sense at all.

In good economic times home ownership should become within reach of more, not less, people. Otherwise, what is the point of all that wealth and a nation enjoying economic success?

The primary function of housing is not for personal enrichment, but for that human need of secure shelter.

Laissez faire capitalism is as untenable as is communism. Steadily and gradually too much of the economic power ends up in fewer and fewer hands.

There is not a single lender out there who at any stage loaned money for altruistic reasons.

I've been waiting for some kind of comment on it in the MSM, but it hasn't happened as far as I can tell - I mean the quite bizarre nomenclature of the 'Fannie Mae' and 'Freddie Mac' smoke-and-mirrors lending institutions that apparently precipitated the current global financial crisis.

I mean, they sound more like plastic cheesecake or cardboard hamburger manufacturers than reputable lending institutions, no?

Oh, hang on...

It's global economic implosion by McDonald's.

In coming times, we need to be careful not drift from Market Capitalism into State Capitalism. Political Scientist, Louis Wasserman's question to assess, where we stand is, "In whose intersts does the State predominantly operate to protect?

"The Market" has proven itself to be no more than a somewhat brainless beast. A thoroughbred, pedigree animal to be sure, but a beast just the same.

One day, someone thought it was time to let it off the leash...

Whereupon it blundered across the freeway and got knocked down. That dumb animal just started chasing after cars and stuff, so the outcome was inevitable. It was just a matter of time.

You see, it was not a product of evolution. It didn't know it's place in the great scheme of things. It had been bred only to hunt for a particular form of game - the elusive Something-For-Nothing bird.

Look - either we put it down, or send it to the vet to be spayed. Then it can spend the rest of it's days as a domesticated, useful animal in the service of mankind. Dunno about you, but I'm sick of stepping in it's excrement.

- and look at this backyard - it's trashed!

CJ

"I mean, they sound more like plastic cheesecake or cardboard hamburger manufacturers than reputable lending institutions, no?"

LOL!

Don't know where their names came from, but they've certainly provided useful scapegoats in the current mess. Not only does heaping the blame on these weird sounding entities conveniently let the more 'respectable' institutions off the hook, it provides a neat avenue for government to be dragged in to share the blame as well. Meanwhile, the real culprits are free to regroup and cook up new ways to bend the rules.

Chris

Great analogy!

The trouble is the punters are still lining up to place their bets on the same old horse.

Anansi “The sky would be falling in Col, if it weren't for taxpayers chipping in”

Not necessarily. Speculators have a sharp eye and see opportunity when it arises.

The great thing with speculators in a capitalist market, they work counter-cyclical, buying when the chicken littles are selling and selling when the chicken littles are buying.

All that happens when governments take over is the market can no longer function because no one is allowed to buy or sell.

I note Bush has stated the package is ‘tactical’, rather than strategic and the US government is eager to divest itself of their acquired assets sooner rather than later. I only trust the taxpayers money, being ‘invested’ produces a value adding return rather than simply being used as “cheap capital on demand”.

“The primary function of housing is not for personal enrichment, but for that human need of secure shelter.”

Ah an “out-with-the-pixies” philosophy.

Housing is a commodity, just like food.

I see plenty of people enriching themselves in the food area of “human need”, from Woollies to my local chippie

Do you believe Safeway and my flake and minimum of chips should be supplied to me at cost?

Not much incentive in that for Safeway or my hard working chip fryer

Chris Carisbrooke “The Market" has proven itself to be no more than a somewhat brainless beast.”

It never has been to repository of all knowledge, it merely brings together those with a common interest in trade.

However, when compared to the ignorance of government, it is an Einstein along side swine.

And as far as a ‘beast’ is concerned, in whatever shape it is perceived, it out rates and will outlive the headless chook image of the chicken littles like Krudd & Co.

>>The great thing with SPECULATORS in a capitalist market, they work counter-cyclical, buying when the chicken littles are selling and selling when the chicken littles are buying.<<

Thanks Col, I was looking for a definition for "PARASITE".

Bronwyn,

It is interesting to note that when actually offered the evidence regarding the directions given to the GSE's by Government, you have nothing to say.

Fannie Mae and Freddie Mac owned or guaranteed HALF of Americas twelve trillion dollar mortgage market. Thats $6,000,000,000,000.

So lets just stop this pretense that Fannie Mae and Freddie Mac are irrelvant. They are the HEART of the problem. That is a fact.

You clearly have done no research on this issue if you don't even know about the names. FaNie MAy is the FNMA Federal National Mortgage Association. Freddie MaC is the FHLMC, Federal Home Loan Mortgage Corporation.

Whats the matter? Cat got your tongue?

Chris Shaw,

Insightful Chris, I wonder what other problems you could solve for us, using your barn animal analogies.

I've got a good one for you. Life under socialist governments is like living in a pigpen, sh1t everywhere and no way to get out.

Clever huh?

Fractelle “>>The great thing with SPECULATORS in a capitalist market, they work counter-cyclical, buying when the chicken littles are selling and selling when the chicken littles are buying.<<

Thanks Col, I was looking for a definition for "PARASITE".”

I knew you or one of the other “follies” would jump on that, I was having a side bet on who would be first.

The point of being a speculator in a bear market is

By accepting the risk on falling stocks the speculator stops the slide and “stabilizes the market, to the benefit of all.”

Likewise, in a bull market

The speculator watches the price and decides when to sell, satisfying the buying demand and leveling the spike, again he “stabilizes the market, to the benefit of all.”

However, your small mind, unable to comprehend the notion of "risk" or "opportunity", immediately grasps on rant of the ignorant, calling the speculator names and decrying his well earned reward, a reward which you will never see because people like you lack

1 the insight to understand how markets really work
2 the bottle to do anything about it

I suggest you pack up your ignorance and leave the “market” to those who have real understanding, instead of evidencing your small minded bigotry of things beyond your comprehension.

PaulL and the other thing with Fannie May and Freddie Mac is, they are nothing new in USA.
They have been around for decades.
Freddie Mac 1970 and
Fannie Mae 1968 (in its present form although originally incorporated in 1938.)

Nice pigpen analogy,

very apt for the "socialist swill". : - )

Good call by Chris - long overdue to read some reminder about how silly the free-market cultists really are; now that the crash exposes their massive fraud, they're working overtime on chanting their old mantras and abusing infidels like ourselves.

The misnomer "Free Market" was always a vague and inconsistently defined anarchist Shangri-La promoted by imperialist misanthropes. There is nothing "free" about it: it is in practice both very expensive if not prohibitive for any entry by the overwhelming majority of the planet's population.

Everyday, simple commercial scenarios prove repeatedly the term's fraudulent quality. A large corporation threatens a retail chain with removing some of its distribution via the chain unless the said chain stops selling a competitor's product. Of course, that competitor's product is superior and sells very well, until it meets the "corrective" and "stabilizing" market force of extortionate, free-market brutalism. Typically, as a rule of thumb, the monetarist god of capital is a weapon used by the dull, mediocre and greedy against the bright, innovative and fair-minded. Speculation by the likes of Soros (who worked for Eichmann as a kid and expresses no remorse) merely carries such free-market brutality out of the warehouse and into the bourse.

The imperialist nature of the free-market shysters and psychopaths probably explains why they get knighthoods, or at least pant and lick in an effort after such pompous and primitive titles.

Bronwyn

This is going to stun you and I guanrantee you'll jump in with an automatic denial.

Fanny Mae is an arm of the Democrat Party.
It was able to lend money to poor and disadvantaged who were unable to repay because the Democrat Party in 1998 ensured the strengthening and the passage through the Congress of The Community Reinvestment Act and the abolition of The Steagall-Glass Act.

The CRA resulted in huge defaults when interest rates went up, the repayment of principle 'kicked in' in these low start loans and house values fell.

The repeal of the Glass-Syragall Act allowed Fannie Mae to sell these mortgages. ie liquify their liability and continue creating much more toxicity.

Up until 6 months ago the Democrats were chanpioning the financial stability and the wonderful benefits it was bringing to the poor in America.

Now they are running from the stinking mess like a mob of paniced emus... and blaming everyone but themselves to boot.

And of course once those laws were changed of course the greedy bastards in the banks and on Wall Street did exactly jumped at the chance to make easy money and the same. Just as any reasonable person would expect them to behave.

Now share some of the real terror.
I saw Rudd today giving a speech at the Press Club. In it he said his rescue of $10 Billion would cushion the impending recession. He also said it was based on the debt in the US of approx 1.4 tillion (14,000 Billion, forget the naughts they are meaningless).

Guess What? He's wrong the estimate of damage from Fannie Mae's stupidities is $7 Trillion. His underestimation is massive. Forget his recession we are in for a depression. And just have a guess at what your property including retirement super will be worth in the next five or six years.
Throwing $10 billion at it is like building a sandbag bank in an endeavour to hold back a tsunami.

Now just to get this straight: while greed did spur the melt-down it was the socialists and their cockeyed ideas that set in train this entirely avoidable disaster.

We were bloody stupid to allow them to meddle in and change the fundament principles of our capitalist system. ie to loan money to people who could not repay.

Are all you stupid dogooders happy now?

The problem with many of you conservative republican supporters is that you are not able to actually look at the history of the US.

For starters Keith, on Freddie and Fannie here are a couple of links:

http://hnn.us/articles/1849.html

http://en.wikipedia.org/wiki/Freddie_Mac

What some of you have to face up to is that the US has been governed since 1969 (Nixon) mainly by Republican presidents. Jimmy Carter, between Ford and Reagan, had one term and Clinton two between the Bushes. Beginning with Nixon Republican presidents have not been shy to bail out big business.

It is becoming incredibly boring to read the cliche ridden knee jerk reactions from some of you when there are posters who are not so bent on unquestioning guru worship and are able and willing to probe.

Keith and Col, ridiculing and sneering do not make for a convincing argument, but shows that either you cannot countenance or fear questioning of your dearly held beliefs or you do not understand the issues sufficiently to be able to explain in decent language why corporations were blameless and it was all due to some people who had no business thinking that they could live in their own house.

Col,you liken housing to a mere commodity, like food. There is a wide range in housing and food. From second beach front holiday homes to caviar. There was a French queen who lost her head making some snide comment about cake. There is quite a way to go before seeing cake as a staple part of one's diet.

Paul, Col and Keith

Thanks for the history lessons, but I'm afraid nothing you've said changes my view that Fannie Mae and Freddie Mac are the scapegoats here, not the villains.

Their conduct was certainly no better than that of any of the others caught up in this mess, but they were the followers not the leaders. It was the banks that initiated the predatory lending to people they knew couldn't repay the loans, as they automatically reset to rates beyong their means, with the intention all along of offloading them onto others before the housing bubble burst. Fannie Mae and Freddie Mac's big mistake was to buy into these subprime mortgages and then get caught with them.

In the words of the co-director of the US Center for Economic and Policy Research, Fannie and Freddie's crime was to go along for the ride. They should be blamed for following the herd off the cliff. They stand out as especially big sheep, but they are not the real villains in this story.

Maybe the following offers a "history lesson" Bronwyn...

Under extreme pressure and duress in 1999, Clinton signed off on repealing FDR's Glass-Steagall act, which hitherto forbade commercial banks from acting like investment banks. There is photographic evidence of the jubilation among usurers when Clinton put pen to paper there.

Once they got rid of Glass-Steagall, banks had to chase that funny money out of the monopoly box: debt became the hottest commodity, although a fake and destructive commodity nonetheless. Any US commercial bank that instead chose to keep playing sensibly would find itself smashed out of the market fast. The decision's flow-on to Australia (and elsewhere) was rapid and influential - the yen carry trade became a crucial development, for example.

Of course, some free-market faith healers tried to justify that junking of Glass-Steagall as a way out of the impending bubble pop from the "tech wreck" (if not also some hiatus left from '97). In a limited, simpleton's way such free-market swindlers were correct: how else could they pump up another bubble to keep Sir Greenspan's derivatives scam alive?

The problem is that such reasoning misses the root problem, exacerbates risk, delays any effort at solution, and makes a real solution more difficult to implement. It is as if they confronted a war and could only decide on how to make the war last longer, threatening yet more horrendous casualties.

I don't know which can of glue keith's been sniffing, but it's obviously dangerous stuff. "Do gooders" had nothing to do with masses of Americans (and great numbers of Australians too) getting drowned in debt and booted out of house and home.

What's going on keith? Been sacrificing goats and chickens again with Prince Philip or someone like that?

Bronwyn,

You are faced with the evidence and you just pretend it doesn't exist.

1) Fannie Mae and Freddie Mac owned or guaranteed HALF of ALL mortgages in America. THEY were the BIGGEST players in the market.

2) They were INSTRUCTED to give loans to poor people by the GOVT.

3) Fannie Mae and Freddie Mac were among the FIRST to be affected by this crisis.

Where do you get the idea that Fannie Mae and Freddie Mac were following the crowd? I've shown you where the GOVT directed these GSE's to lend money to low income people. How do you reconcile this?

My concern is neither ideological nor financial. I decided to simply ask you all to see past your prejudices and seek all the truth. I have found that often owning just part of the truth often obscures the whole truth.
I’ll quote a few examples here and I don’t mean to be harsh.
Bromwyn and PaulL you are both technically correct with regard to the involvement of Fannie Mae. However you both only have part of the truth. The Banks were the first to issue sub-prime loans but Fannie May was the largest dealer in them and never issued any.
However it is clear neither of you understand how Fannie Mae operated. It was formed, and up until the early 2000’s, to only buy mortgages that had been executed between Banks and borrowers.
The Steagall-Glass Act effectively prevented the trade in mortgages that was repealed in 1999 after bi-partisan approval in the Republican Congress and approval by Clinton. Clinton could have vetoed it, but didn’t.
As a trade off the Democrats gained a strengthening of the Community Reinvestment Act. This proposed financial institutions provide loans to people who wouldn’t ordinarily gain home loan approval. It was directed towards minorities and the poor. It had punitive provisions. Clinton also approved this Act.
The specific effects were: Clinton pressured the banks to initiate these altruistic CRA loans and Fannie Mae accommodated them. Fannie Mae under Franklin Raines was the first financial institution to parcel and on sell them as derivatives. That enabled refinancing as the loans defaulted. As the banks realised they had no liability for these bad loans naturally they embraced the process with gusto. They were getting great fees with no liability. Daniel Mudd, Franklin Raines successor at Fannie Mae, oversaw the massive expansion of the parcelling and selling of the derivatives and naturally trading in them on Wall Street was raised to a fine art and exploded across the world.
Now do you see how you are both right but each of your positions obscures the whole truth?

Mil-Observer,
because I address all the truth I will not be drawn into one of your abusive ideological exchanges . That’s what I’m on, truth.
As we see you, are right that the ogre was out of the box with the repeal of the Glass Steagall Act but as I have shown above , that is only part of the truth. I agree such greed and stupidity saw the bad debts spread right across the world’s economies. But you’ve overlooked the influence from the Community Reinvestment Act. Your post therefore doesn’t address the social engineering that undermined prudent banking process and how repeal of Glass-Steagall allowed ‘pass the parcel’
By addressing Alan Greenspan’s action, which btw I agree with your position, you show you haven’t any understanding of the operation of the Federal Reserve. It is in every ones interest to understand this beast and its operation. It is the key player and hugely influenced by the Banks who own it.
Briefly it has huge power for it pulls all the levers in the US economy. It sets economic policy and is supposed along with Congress to oversee the operation of the Banking system in the US.
No US President has influence over its day to day, week to week, month to month nor year to year operation.
The US President’s influence is limited to appointing 7 of the 12 members (He must appoint one of those from the NY Federal Reserve) of its Board of Governors, its Chair and vice Chair. Greenspan was appointed by Ronnie Raegan in 1987, reappointed by George Bush Snr, and reappointed by Clinton ... twice.
Do you see how your views are also correct but it is only parts of the truth and obscures the whole truth?
Capitalism has served us well for nearly 80 years. It has been undone by the stupidities of the ideologues of the extremes, the no –regulation laissez- faire mob and the meddling do-gooder socialists.
We need to return to the sound banking and economic practises of the past.

Paul.L

"You are faced with the evidence and you just pretend it doesn't exist. 1) Fannie Mae and Freddie Mac owned or guaranteed HALF of ALL mortgages in America. THEY were the BIGGEST players in the market."

I have already agreed they were big players in the market. My quote that 'they stand out as especially big sheep' made that abundantly clear.

"2) They were INSTRUCTED to give loans to poor people by the GOVT."

The government is not blameless in this mess, but at no time did it instruct anyone to rip people off. The banks did that without instruction from government. Lending money to low income people would not in itself have created this crisis. Low income people are not incapable of paying off a loan when the repayments are set fairly. The success of the Grameen Bank attests to this fact.

"3) Fannie Mae and Freddie Mac were among the FIRST to be affected by this crisis."

That doesn't mean they were responsible for it. As I've already stated, they quite wrongly guaranteed and bought into these subprime loans and got caught with them, but they weren't the ones out there flogging them off to vulnerable people in the first place. The banks were. Fannie Mae and Freddie Mac could well have been employing the same predatory lending practises as the banks, but I haven't come across evidence they were, not to say it doesn't exist, and I'm sure you'll produce it if it does.

"Where do you get the idea that Fannie Mae and Freddie Mac were following the crowd? I've shown you where the GOVT directed these GSE's to lend money to low income people. How do you reconcile this?"

I’m perfectly aware of what you’ve 'shown' me. There are many and varied interpretations of what has caused this crisis. No one has a clear monopoly on the truth, least of all you. I begin from a different perspective to you, read from different sources and will naturally arrive at different conclusions. Some of the sources informing my opinion are as follows:

http://www.alternet.org/workplace/102672/financial_meltdown_101/?page=entire

http://www.alternet.org/workplace/102964/the_flat_earthers_try_to_pin_financial_meltdown_on_fannie_and_freddie/

http://www.alternet.org/workplace/98076/nationalize_fannie_mae_it_worked_until_it_was_privatized/?page=entire

Thanks keith - I see you've no hard feelings about my glue-sniffing taunt; I meant none. I was really worried more generally about the large doses of toxic "liquidity" running through neolibs' veins lately.

You seem to have amended your previous description, where you located the fault with "do gooders", only this time adding to that crowd the "no –regulation laissez- faire mob". I think that proves how we do actually agree on the main argument here; maybe you just gave the impression of casting blame where you are not. Specifically, I'm sure you'd admit that many if not most "do-gooder socialists" would not have gone along with the repeal of Glass-Steagall, or with much that passed as Fed policy on Greenpsan's watch.

Furthermore, not all who claim or deserve the label "socialist" would necessarily warrant the other category "do-gooder". My point here is that some avowed socialists would have no problem spurring along the mad fakery of the derivatives bubble if, for example, they believed it just proved Marxist eschatology: "abracadabra", pop the balloon, and watch the proletarian dictatorship spring from the oven! I expect Engels himself would have found himself in that camp, all the while speculating too.

As for “do-gooder socialists” endorsing the madness: wouldn't surprise me. I read enough avowed socialist stuff expressing strange ideas like “our unprecedented prosperity”, and “the best system we could possibly have, despite its flaws”, and so on. I'm sure there was at least one such “lefty” when Clinton signed off on dumping Glass-Steagall while threatened with ignominy worse than Nixon should have earned, and all from the Lewinsky nonsense. The snake oil merchants would have said: “Now the poor can enter the property market – everyone will be middle class”, patting the woolly-headed token “lefty”.

But “capitalism has not served us well for nearly 80 years” as you say. Maybe it has served you well, but I've been serving it too well these last twenty! Capitalism stopped working properly with the end of the Cold War and the start of Sir Alan Greenspan's bubble-blowing.

Anansi “Col,you liken housing to a mere commodity, like food.”

Yes, in fact on the pecking order of things, you can go longer without shelter than you can without food.

“It is becoming incredibly boring to read the cliche ridden knee jerk reactions from some of you when there are posters who are not so bent on unquestioning guru worship and are able and willing to probe.”

I see a serious “credibility problem” for someone who comments on the use of “Clichés” and then proceeds to reflect on Marie Antoinette’s dietary habits.

As for a willingness for probing, it was either her husband or her father-in-law who was fixated on the being probed.

I suggest the matters he was being probe for is akin to the matters you are speaking.

“ridiculing and sneering”

I see no ridicule nor sneering in what either keith or myself have posted. I see a lot of self righteous ignorance in the drivel which you have presented here as an alternative to reasoning.

But you are obviously from the “excuses” side of the political spectrum and capable of no constructive contribution. I suggest you jump ship (the preferred mode of departure of the lefties, if the way they dishonour their bank loans is any guide) before you get mauled.

Bronwyn “scapegoats. . . but they were the followers not the leaders.”
Prove it.

It should be easier for you to name the ‘ring-leaders’, rather than just the ‘fallen’.

“It was the banks that initiated the predatory lending to people they knew couldn't repay the loans”

WRONG !

No bank lends on that criteria let alone the intention of the borrower defaulting.

I wrote to you “Bail them out or let them sink?” posted by me on 12 October 2008 8:35:29 AM

anyone who accepts a loan without reading the agreement and understanding their responsibility to meet the repayment schedule is defrauding the bank and the system which we all live under.

Your capacity to excuse the misconduct of the financially irresponsible, incompetent and negligent, beggars belief.

Outstanding Col!

Great that we're both reading from the same page about some "responsibility to meet the repayment schedule".

Now let us explore just who's being responsible in this maelstrom of funny money debt, and who's defrauding whom.

Owner-occupiers, negative-gearing aspirant landlords and anchovy-level speculators get swamped and have to sell, whether as formal foreclosure or - more likely in Australia lately - as a nervous and optimistic re-entry into the lard-bloated real estate market. Out they go, regardless of the massive inefficiency, other waste and disruption caused. My family and I recently moved because the idiot landlord couldn't meet his own repayments and insurance costs, so out we went, even though the mortgage was not our responsibility and we nearly always paid our rent far in advance. Time off from work, kids' schooling disturbed, major logistical effort. OK, we're used to paying for others' incompetency anyway; just think of all the tax we've wasted.

So you can sleep easy Col: thousands are continually being uprooted like this, including many others much worse than my case, like those rendered homeless yet owing enormous sums.

However, when the CDOs and CDS get called in according to a "repayment schedule" at the level of investment banks, we see a very different process. There is a supposed "government intervention" (a nasty misnomer), as bizarre welfare mechanisms take over, all at public expense. Yes, it does seem strange, but these institutions take in many billions; some, like Goldman Sachs, are allowed to avoid much of their more immediate risk by being made into commercial banks!

Therefore, if we apply that notion of contractual responsibility, they should be out on the street too, and declared formally BANKRUPT. After all, we and they know that they are bankrupt in fact.

Why not declare them bankrupt? Neither the people nor the state had any contractual obligation to bail these clowns out. And please don't repeat the mindless media drivel: "well, they had to do SOMETHING", and "they have to keep the system functioning". It is clearly very dysfunctional, as the looming derivatives eruption will remind us further.

Bronwyn,

You say >> “The government is not blameless in this mess, but at no time did it instruct anyone to rip people off. The banks did that without instruction from government”

This crisis has not been caused by the banks RIPPING people off. This crisis originated in the failure of subprime mortgages and the real estate bust. The economy doesn’t almost collapse because some poor people lost some money.

“Subprime” lending is lending to people who are otherwise not good candidates for a loan. Loaning poor people hundreds of thousands of dollars meets the subprime definition.

Secondly, you clearly don’t understand the function of Freddie Mac and Fannie Mae. They are secondary mortgage market players. That is their focus is on buying loans from banks, packaging them up as securities and selling them on. They aren’t involved in the retail side of lending. They rely upon the banks for that. When Freddie Mae and Fannie Mac were instructed to make loans to poor people, the way they did this is by buying loans banks had already made to poor people, thus freeing up the banks capital, so they could make more such loans. Many of the so-called predatory loans, the ARMS for example, were bought by Fannie Mae and Freddie Mac.

>> “ In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers.” http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

I'm not suggesting I have a monopoly on the truth. I’m asking you to accept what I’m saying, or show me where I’m wrong. I stay well away from Alternet. The bias there is SO strong it makes my eyes water.

I'm not saying the banks are blame free either, just that the situation is complex and easy solutions are a mirage.

Paul.L

"Secondly, you clearly don’t understand the function of Freddie Mac and Fannie Mae. They are secondary mortgage market players."

I do understand that and can do without your patronizing and repetitive accusations to the contrary. The following statement in my last post to you made this quite clear, "As I've already stated, they quite wrongly guaranteed and bought into these subprime loans and got caught with them, but they weren't the ones out there flogging them off to vulnerable people in the first place."

"I stay well away from Alternet. The bias there is SO strong it makes my eyes water."

I don't think you're in a good position to lecture me on sources. The sources you quoted me, Wikipedia and a commercial mortgage advice site, hardly give you cause to jump up on your superiority pedestal. The only reason I posted those links in the first place is because I'm tired of going over the same old material with you. If you'd actually read them, you'd better understand where I'm coming from, but no you've written them off without a look I would guess. All of those writers are well-known and respected commentators on economic matters and write for many other publications besides Alternet.

I wouldn't bother wasting any more words on this circular argument if I were you because I certainly don't intend to.

"Greed" and "extreme capitalism" without a political economy context have no explanatory use. Focussing on ethical flaws diverts analysis away from the essential characteristics of capitalism. Capital produces needs in workers in order to realise profits from the sale of the products embodying their labour power. That drive to satisfy the needs of capital by stimulating debt is at the heart of the current crisis.
Leslie

mil-observer.

We don't agree at all. I am seeking truth and you are seeking blame. I am seeking to ensure a repetition won't occur and ... well I can't figure out what it is you want.
I see the crisis caused by a combination of factors you see it as caused only by people who share some of my views.

You've not really addressed the Community Rinvestment Act or the actions of Clinton.
'Now the poor can enter the property market – everyone will be middle class”, patting the woolly-headed token “lefty”.'
It wasn't one woolly-headed token 'lefty' who proposed this it was the whole bloody democrat party in the US Congress and if you really have a good look at them they are typical rich elitist dogooders., and you've excused them. Like every socialist I know you can never ever be wrong nor accept socialist ideas can cause crap. Socialists are like that because there is only one shade of socialist.

You see on my side of the ledger there are all shades of capitalists. From extremes to moderates. The difference between socialists and capitalist is that capitalists face realities and have to present logical points of view to gain support for their ideas. Responsibility and reasonableness are priorities. We accept mistakes and can alter the way we do things.
All Socialists adhere to dogma. Hence to admit to any sort of error totally challenges their whole world view.

Look I'll give you a little personal advice. Twenty years ago I was a broke single custodial father of a 2 year old and a 4 year old. I've seen and heard of more difficult circumstances.
Get over it.

Good grief people! Talk about shooting the messenger, and then shooting the shooter of the messenger!

I thought this was supposed to be where people comment on an article that other people have gone to the effort of preparing and publishing.

After reading this back-and-forward slanging match I have almost forgotten about the article. But I think you comment-posters would find you have much more in common than you make out, and have a lot more to offer than demeaning yourselves with cheap name-calling. At least both 'sides' have admitted that they don't have a monopoly on the truth, that is a start.

Now, as I understand it, a perculiar convention has been adopted in most places, whereby banks (the banking system) create most (these days 97-98%) of what functions as money. This has not always been the case, and it certainly need not be the case, but that is the mechanism being used at the moment. I do not think there would be anyone who had a good understanding of the present monetary system who would, or could, refute that.

There are many things that could be said about this situation, but there is one thing that I think pertains to the article about the current events (supposedly) under discussion here:

When we read or hear in the media that "taxpayer's money is being used to bail-out the banks", what that really means is "the banking system's credit is being used to bail-out the banking system, through the agency of the government agreeing to go into debt to the banking system by borrowing the new credit from it as a new debt, and then using the new 'money' to purchase bad loans from the banks and/or purchase new shares in the banks." The only role the taxpayer plays in any of this is to 'service' the new debt by paying taxes to the government to pay the compounding interest charges.

[Volatility! I just made some caustic criticisms of self-proclaimed “socialists”, but got the pejoratively used “socialist” tag anyway. Things seem very touchy during this crash]

Thanks Leslie. However, I think most of us are now beyond the Great Smurf's recent token, faux-biblical/-koranic utterances about filthy richness as made impotently and insincerely about his oligarchic bosses and minders. Would he include his wife too? Probably should, and we should also expect him to appear at the next doorstop in a hairshirt. While he's at it, he can try getting state money back from the massive bail outs himself, that dullard Swan, and spiv-psychopath Turnbull of Goldman Sachs have all been telling us “had to be done”.

Yes, the problem is obviously with capitalism – even the most deluded and mystical of capitalists must agree on that point! We could add that similar mechanics of capital, debt and profit underlay the collapse of the avowedly “socialist” Warsaw Pact states after they had hocked onto western debt. I guess you would agree that end of the Cold War was a case of “state capitalism” imploding from debt.

However, do you say anything specific about Sir Greenspan's derivatives bubble, and the enormous debt packages traded between ultra-capitalists? Part of me would enjoy the ideological certainties implicit in your diagnosis, but they suggests no solution.

A stark historical comparison compels a question. Why was FDR's presidency able to construct a massive industrial power out of the Great Depression, enough to defeat fascism and make America the richest and most powerful ever?

As you may discern from my side discussion with keith, I think it important to remember that FDR actually constrained quite severely that capitalistic tendency towards debt. And to link with my retort to Col, FDR reorganized the US system via bankruptcies, genuine international exchange controls, and direction over the US banking system (not the neolib cloud cuckoo land reigning free in recent decades).

All key dynamics behind this ubercrash result from decisions and processes contrary to FDR's precedent, just as the cowardly and corrupt political leadership ignores FDR's example.

Mil Observer

what about addressing the Community Re investment act.

Debt Free or 'Brother"

You are spot on. In the US it is the Federal Reserve that 'creates' money. That role was given to Congress by the US Constitution. That process should be returned to Congress and it's importance codified.

The corruption of this process begn with Nixon when he sbolished the Gold Standard and has been a gradual process. I don't know that we should return to that but I do know the Banks (Through their influence in the US Federal Reserve) shouldn't have control of that process.

As regard taxpayers money and the bailout. The Fed Res will fund the bailout by printing money. Not only will we service the debt but we'll also pay via a massive future increased inflation, increased interest rates, increased unemployment and falling asset values. ie a depression.

Let's hope a loaf of bread won't cost $1million dollars.

keith - How and why must I address the Community Reinvestment Act in the context of this long-term global atrocity, arisen as it has from the massive debt bubbles of too-clever-by-half neolib economists (including Greenspan as their Maharishi)? OK, fine, I'll do it anyway.

After your prompt, keith, I now understand that minor, and therefore largely irrelevant, detail has brought much belated partisan chest-poking in the US itself. But emphasis on the Carter-era (1977) CRA amounts to just another wasteful distraction via weak, prima facie analysis of legislative mechanisms behind the sub-prime market. It would be as useful as investigating the construction and routing of Polish railways when discussing the causality and responsibility behind Auschwitz-Birkenau, for example.

That leads into my next point about "seeking blame", which is unclear English suggesting also that I might be trying to take the blame myself! If you mean "assigning blame", then sure I am: to all the neolibs, funny-money debt farmers, and corrupt, cowardly party apparatchiks who facilitated even encouraged such lunatic degeneracy. Of course, I count corrupt and gutless US dems among that lot: Gore, Pelosi and Obama are just some of the more obvious and prominent of such courtesans of free-trade idiocy (beside republicans), but that limited focus would be too narrow when we consider the problem's international scope, and the many players among financiers and politicians who have prevailed since at least Nixon's criminal reign, if not earlier when genuine American leadership, black and white, was assassinated - repeatedly.

That above reference to Nixon prompts me to address your mention of the “gold standard”. I think you will find that Nixon's mischief there covered the US “gold RESERVE standard”, which is a quite different entity to the British imperial “gold standard” that waned by the 1930s.

But look at the hypocrisy: you accuse me of only "seeking blame", whereas you assign blame to some loosely defined even caricatured "socialists" somehow synonymous with the US Democratic Party! You claim to seek "no repetition", as if you hold some moral high ground of responsibility.

However, you cannot see the clear sources of policy and ideological responsibility for this mega-crash, and instead choose to blame a different (though still essentially monetarist) ideology that has had little if any direct influence on such explicitly capitalist free-market policy. Your presumed moral high ground does not even scale the heights of a grassy knoll. And yet you dare to snipe.

On reappraisal keith, it seems to me that your hypocrisy, and your cognitive and analytical rashness and confusion, suggest two possible causes. The first is the widespread cultural decadence that has produced: relativist doubt and bipolar thought processes sponsored to the point of established substitute for learned wisdom; feudal cults of celebrity and individualism, and; “user pays” corruption of health, education, and utilities. The second cause for your latest venture suggests a simpler explanation, amending my initial call about glue: a rush of liquefied cocaine, as long favored by many neolib bubblemakers, usurers and fawning media apologists.

You betcha I'm out to assign blame. Indeed, I want to do more than just point fingers: I want prosecutions for the ongoing thefts, frauds, treacheries and violations of sovereignty that the bail outs and guarantees represent. These cowards and traitors are a clear and present danger, threatening my children's future with hyperinflation, starvation, fascism and other such savagery.

*Thanks Col, I was looking for a definition for "PARASITE".*

Actually Fractelle, counter cyclical or value investing is not
about greed or being a parasite at all, its about common sense
to take advantage of those who were too greedy.

Note the present people who are jumping out of proverbial
windows. It is people who borrowed too much, people with
margin loans, hedge funds, people who bought too many houses,
ie those who wanted to make an easy quid.

Value investing is about letting common sense rule emotions,
not the other way around.

If the house that you live in, was for sale on the market for
a third of its price a few weeks ago, would you consider buying
it? Smart people would certainly consider it and that is exactly
what value investors do. They don't buy when the greedy are buying
up and they consider buying when the greedy run into trouble, as
like now.

Warren Buffett is a classic example of value investing, why would
you call him a parasite? After all, he is donating his wealth to
charity, doing far more for poor people, then you ever will.

Now take BHP for example. Just a few weeks ago it was valued
at 50 Australian $ a share. Now its valued at 25 Australian $
a share and the Australian $ has dropped by 25% or so, so its
value has dropped by 70% in international terms.

Yet the mines are still there, the production is still there,
the machinery is still there. etc. People will still buy
steel, nickel, petroleum etc, just a bit less. Why should anyone
who now buys BHP shares, be called a parasite? They are great
value after all, IMHO anyhow.

Ideology & dogma are comforting in troubled times but they can also have a nasty habit of getting in the way of clear thinking. As the authors of the article rightly suggest - and as most of the commentators seem to agree - ultra-free market ideology has played a major part in bringing us to where we are today. This type of capitalism is what John Gray calls an 'apocalyptic political religion' - Stalinist communism is another variety - a form of utopian belief that might be harmless if enacted on a small scale but which usually proves catastrophic if implemented at a national or global level (http://www.amazon.co.uk/Black-Mass-Apocalyptic-Religion-Utopia/dp/0713999152).

Rather than resorting to futile name-calling and generalities about how 'capitalism has served us so well', we might better begin by looking at what the consequences of the dominant system have been & where it's likely to lead us. Given that we all inhabit one planet, I suggest it's better to do this on a global rather than a national level.

One of the fundamental features of the present system is its dependence on exponential economic growth (see the ‘Earth as a Magic Pudding’ story). Many respectable voices are now saying that to believe that this will be possible in a finite world is to live a dangerous illusion. The latest edition of the New Scientist magazine has a special feature on the need to 'banish the god of growth' that is well worth reading. Living this illusion for the past 150 years has brought us face to face with the time of the ‘Great Acceleration’ – converging, intensifying crises – energy & resource depletion, mass species extinction, runaway climate change, widening inequalities nationally & globally, increasing militarism, and now extreme financial & economic instability. We are actively reducing the life chances of our children and grandchildren.

We desperately need (a) imaginative and bold alternatives – eg steady state economics based on ecological principles, and; (b) the political will to implement them. The first we have, it’s the second that’s in short supply

Yabby

"The global economy is at risk of a crash that would cause intense pain among millions of ordinary people, and not because of a few million homeowners overextending themselves, but rather as a result of a small number of savvy wheeler-dealers rigging an unregulated investment market in such a way that they'd always win no matter who else lost."

These are the parasites to whom I refer - not your average mum and dad investor.

The fact that you are trying to justify this predatory behaviour does not add to your credibility.

"It's certainly true that people got in over their heads during a frenzy of home-buying and refinancing, and it's also true that lawmakers from across the political spectrum have long tried to increase American home ownership -- it's a politically attractive antidote to inequality."

"But the focus on home mortgages misses a crucial point: Through mid-July, banks had written off about $435 billion in bad American mortgages, a drop in the bucket relative to the size of the global economy. There's simply no way that even a major drop in the value of the U.S. housing market could possibly threaten the economic health of most of the planet.

That's where "derivatives" come in. These instruments, which Warren Buffet called "the real Weapons of Mass Destruction," are "worth" about $500 trillion, or roughly 10 times the output of the global economy.

So just what is a derivative? A derivative is a piece of paper that can be bought and sold for real money but isn't attached to a real asset. Its value is simply derived from something tangible -- hence the name. You hear a lot of talk these days about the "real" nuts-and-bolts economy, and derivatives are in essence the exact opposite: They represent an unreal economy, created by financiers in mahogany-paneled office suites in New York and London, and it's this shadow economy that teeters on the edge of collapse today, threatening to bring down much of the real economy with it...."

Cont'd

Cont'd

"In large part, they exist in a shadowy world free of regulation or oversight, they allow investment bankers to repackage risky investments into something that appears to be relatively safe (or at least safer than they really are), and they allow investors to "leverage" their investments -- essentially buying securities that they don't have the money to purchase -- to a far greater degree than traditional investments allow." In large part, they exist in a shadowy world free of regulation or oversight, they allow investment bankers to repackage risky investments into something that appears to be relatively safe (or at least safer than they really are), and they allow investors to "leverage" their investments -- essentially buying securities that they don't have the money to purchase -- to a far greater degree than traditional investments allow." In large part, they exist in a shadowy world free of regulation or oversight, they allow investment bankers to repackage risky investments into something that appears to be relatively safe (or at least safer than they really are), and they allow investors to "leverage" their investments -- essentially buying securities that they don't have the money to purchase -- to a far greater degree than traditional investments allow...

...There are all sorts of derivatives. They are essentially bets -- you can bet that a market will go up, or down, or that a particular company will do well or poorly. You can bet on interest rates going up or down..." anything you like.

http://www.alternet.org/workplace/103514/?page=1

This type of speculation IS parasitical - it contributes nothing overall to industry, workers or, as a result, the real economy.

As TOYB says,

Is the political will viable or is it still too controlled by a wealthy elite who care nothing for the average person be they worker or small investor?

*>>The great thing with SPECULATORS in a capitalist market, they work counter-cyclical, buying when the chicken littles are selling and selling when the chicken littles are buying.<<

Thanks Col, I was looking for a definition for "PARASITE".*

Fractelle, that was Col's quote and your response on Wednesday.

Clearly you are confused, for there are many counter-cyclical
investors and speculators out there, playing an important role.
You are lumping in everyone together, including loan sharks who
sell people mortgages etc, corrupt bankers with legit bankers.
Derivatives are something else again and I don't see what they
have to do with the comment, so maybe its just a red herring
from you, or confusion.

Just yesterday I was reading an article in Perth's Sunday Times,
about non bank lenders in Australia still selling people mortgages
at 12-13%, when banks reckon they don't have enough security for
a bank loan. The agents are of course on large commissions.

Now if these people fall over financially down the track, they
will have to carry the responsibility for their actions and to
try to blame it all on those naughty bankers is a bit naive.

Sure there are sharks on Wall St. Duh. So where were the regulators?

Politicians clearly let the people down. What happens in Wall St
is about what is legal, not what is moral. But that is common in
business. Anyone not aware of that, clearly does not understand the
business world, or certainly a good chunk of it.

Mil - Observer The Community Reinvestment Act forced banks to undertake lending activites that undermined capitalism. ie give money to people who couldn't repay it. A recipe for disasrter and it was biought on by the socialists in Congress. That's why you should

Your current diatribe just proves my point and it shows you lack reasonableness in your approach.

You seek only to blame and label those who don't share your ideology and you cannot accept the cupubability of those who share you idealogy...

And as usual when you realise you've lost the debate you resort to ridicule, invective and personal abuse.

Sigh, will you never learn.

For those still in thrall to delusions of the neolib regime, it should now be obvious how this crash has its determinants in large-scale, high-level trade of packaged debt (whether termed CDO, MBS, exotic, etc.), under a very artificial and vast protective layer of derivatives trade. While this magic show kept returning figures of an almost entirely monetarist rather than physical growth, the system's architects got constant praise, Nobel prizes and other deference. Such stratospheric status of neolib gurus, funny money traders, and their lackey pundits itself became an important commodity or political force, and they will not relinquish their privileges, however clearly undeserved.

Hence the greatest heist ever: the bail outs.

Governments' massive, ongoing bail outs of banks prove how neolib financiers have subverted and subordinated the political system, particularly in the west. Neolibs' latest effort to sustain their exalted status depends also on strenuous, creative spin to deflect attention from both their incompetency and their criminality. Hence the shift: macro—micro; structural monetarism to personal foibles; usurers' collective failure and non-provision of choice, to poor individual consumer's gullibility even irresponsibility!

keith - your haughty claims are self-evidently fraudulent. Between 1977—1999, there was almost no such farm-out of non-repayable debt as associated with recent sub-prime frenzies. Your pettiness here parodies even your own low, vaudeville standards – keep sacrificing those goats in your exclusive secret society and exclusive club ;-)

TOYB – we should call your own ideology and dogma here. “Runaway climate change”? Yes, still a HOT topic in the western media, even during some of the coldest winters for decades. You mention Tim Flannery, but what “clear thinking” can we expect from him? Pumping sulphur into the atmosphere to combat “global warming”, as Tim “Australian of the Year” recently proposed? Perhaps your own mind inhabits or even represents “a finite world”, but myself and several billion others will appreciate how well current nuclear technology has advanced, for example, to offer our children a future – as distinct from ruthless depopulation and an agrarian hell serving such parasitic green dullards as Sting and Prince Charles.

mil-observer

And of course, as you assure us it was all the fault of the neo-cons or whatever so long as socialists aren't implicated in any way, the melt-down could not have happened without the toxic loans.

Your illogical rants just keep on proving my point about you socialists.

Sigh, get over it. Why do you keep dwelling in the past?

"Sigh, get over it. Why do you keep dwelling in the past?"

That's okay, Keith. You stick to reading the stock market reports.

Hopefully though, there are enough people out there who ARE dwelling on the past, if not in it, and are learning from its lessons, so that we won't find ourselves in this place ever again. For too long, we've allowed ourselves to be lulled into a false sense of security, as each new generation of pumped-up Wall Street worshippers has assured us that the crashes of the past could never happen again.

History IS important, Keith. You should try learning from it.

MilObserver - your points about the origins of the current financial crash are well-made. I would suggest that instability, crises + crashes are systemic features of finance-dominated capitalism - see what Thorsten Veblen had to say about an earlier phase of this especially rapacious & predatory economic system. The reason it is rapacious & predatory is a function of the systemic competitive pressures & the incentives towards excessive greed associated with them. This has become all too apparent in recent weeks & years.

I'm not sure why you mentioned Tim Flannery, Sting or Prince Charles, none of whom I made the slightest reference to. It is drawing a rather long bow to suggest that to speak of ‘runaway climate change’ is a form of dogma and ideology. I am aware that there are climate change sceptics, including yourself it seems. However, whether or not climate change is ‘real’ and / or human-induced, is above all a scientific question that should be determined on the basis of evidence. I am far from being alone in believing that climate change is both real and human-induced, and there is an abundance of evidence for that view. If you want to challenge it here, at least provide a bit more evidence than anecdotes about cold winters.

Similarly with respect to the issue of nuclear power: there are many good, evidence-based reasons to feel (a) concerned about a whole-scale embrace of this technology, not least the question of what to do with the waste, and (b) how sustainable a solution it is to the energy conundrum, given that uranium, like oil, will likely have its own peak in production in the not-too-distant future (http://www.theoildrum.com/node/2379).

Rather than place all my faith in technology, I prefer to work with those around me towards cultivating ways of life that are more in keeping with the carrying capacity of the planet. This does not have to entail ‘agrarian hell’ or population culling, neither of which I support. It’s worth remembering though that the current system already produces versions of agrarian and urban hell for most of humanity

Fractelle,

You consistently refuse to accept the role that Fannie Mae and Freedie Mac’s subprime directive, courtesy of Democrat politicians, played in creating this problem in the first place. Banks sold sub prime loans because Fannie Mae and Freddie Mac were buying. These GSE’s then repackaged these subprime loans as mortgaged backed securities, which were given high credit ratings because they were supposedly gov’t backed. This poison was then spread through the system because not only were they profitable, but they were also considered low risk.

You seem to have this idea that a bank loan is a right, and that paying it back is optional.

Your point about derivatives demonstrates you total lack of understanding of finance. That wouldn’t be a problem, except you are holding yourself out as, if not an expert, then someone who knows what they are talking about.

Derivatives ARE important part of an economy. They provide investors with an ability to manage their risk exposure. A simple example is a farmer who has corn. If he thinks that he may not get the price for the wheat he grows, he can enter into a futures contract to sell his wheat for cash on a certain day. This then reduces his risk of not selling his wheat, and it reduces the risk of the buyer in not being able to source wheat.

You say >> “There's simply no way that ... the U.S. housing market could possibly threaten the economic health ...

First Fannie Mae and Freddie Macs held HALF of all mortgages in the US. That’s something more like 6 trillion dollars. Then there was the 81 other public companies filing for bankruptcy this year. Furthermore, no one believes that the 435 billion written off was the end of the matter. The fear in the market is that more is undoubtedly coming. Secondly, the economy has been affected by a credit crunch, with banks and other financial entities refusing to lend money to other organizations because of a fear that they might go belly up before the loan was repaid.

TOYB - thanks for your calm reply which, given the critical importance of the issues we both raise, could have easily become a savage grappling match. I'll try briefly to grapple instead with some of these issues just to express my own perspective here.

The celebrities I mentioned have each demonstrated a faithful green mysticism, while conveying quite draconian messages about a "green" economy and world order which I believe we can identify only as that regressive and brutal system called "feudalism". On moral grounds I oppose such people's influence instinctively and vehemently.

The supervising and proselytizing for the doctrines of anthropogenic global warming have been conducted largely by apparatchiks from precisely the same circles of monetarist debt trickery that brought us into this calamitous global crash. Both Nick Stern and Ross Garnaut are World Bank men; Al Gore is a hedge fund manager whose avowed humanitarian vision did nothing to stop him voting down generic AIDS medicine for Africa. Various schemes for emissions trading promise a faith-driven "bubble dynamic" identical in function to the irrational zeal for derivatives, for example. Therefore, I see such oligarchs' efforts as yet more regressive, oppressive and misanthropist.

In light of serious and detailed scientific contradictions of AGW claims asserted - and more importantly, lavishly sponsored - by such banking figures, I cannot explain their sectoral interests in AGW as mere functional coincidence, or some demonstration of belated eco-conscience from the predominant elements within the western capitalist establishment.

A further factor that I consider in this sense is geo-strategic. China, India, Indonesia, and Latin America all promise to finally develop to stages of civilization that promise to overtake the long-dominant forces in the west. Western demographic trends have helped to hasten this shift to such re-ordering of global power. Promotion of AGW and associated fiscal control mechanisms offer the networks of western-based imperialism their last chance at continued dominance or, at least, survival by parity.

Thank you Mil Observer for your equally calm reply. These forums are much more enjoyable and productive where participants engage from a position of civility and respect rather than savage grappling.

Again, your points are well-made. I’m completely comfortable with the description of the current global system as imperialist; one of the best analyses I’ve come across is David Harvey’s classification of it as ‘accumulation by dispossession’ (http://www.oup.com/uk/catalogue/?ci=9780199264315). I lived in Guatemala for seven years and I know what severe poverty looks like. I have no doubt that a certain fraction of capital sees huge profit opportunities in the renewable energy sector, just as another fraction wants to keep polluting for as long as possible. Equally I am sure your suspicions regarding the geo-political motives of the faltering imperialist bloc have a sound basis in fact.

Be all that as it may, it does not necessarily mean that AGW as a phenomenon is a hoax. Not all climate scientists are World Bank stooges. My interest is more in the possibilities it and other related crises – resource depletion foremost among them - present for transformative political and economic change, combined with questions of political strategy.

Most Australians accept AGW as an established fact. So even if you are right – and you may be – you are going to have a very hard time pushing this aspect of your case. Personally I think it’s better to work with the flow of what Gramsci called ‘the common sense’, and try to direct it towards progressive and transformative ends. So yes, segments of dominant capitalist interests see AGW as potentially founding a new accumulation regime; on the other hand, there is a growing movement in agroecology and ecological and feminist economics that sees in it the opportunity for quite a radical restructuring of social and economic relations. Have a look for example at the ‘Green New Deal’ proposed by the New Economics Foundation in the UK (http://www.neweconomics.org/gen/), and the Zero Carbon Britain report (http://www.zerocarbonbritain.com/). These are important attempts to combine social justice with environmentalism, and are a step in the right direction.

Take off your blinkers,

Thanks for the link to David Harvey. It's 25 years ago that I read some of his work for the first time and was very impressed; but he has since fallen off my radar screen. Now I'll have another look at him. He helped shape my thinking about problems in urban areas going well past the old Chicago school.

Mil Observer,

Personally I’m not entirely convinced by AGW, although climate change itself seems to be occurring.

I have to take issue with you ad hominem attacks on Stern, Gore and Garnaut. That type of fallacy is endemic in the conspiracy minded far left, which has many similarities with marcarthyite anti communism, where a person was judged based upon their associations and not upon their actions. I struggle to see how you can hold out yourself out as an expert upon either of those two men’s personal motivations, So lets just stick with critiquing their actions, rather than lumping them all in with the CONSPIRACISTS/IMPERIALISTS.

The reason we have economists writing reports on carbon reduction initiatives, like a carbon tax, is that the impact of such a program will be felt all the way through the economy and has the potential, if not implemented carefully, to significantly damage our economy. I wonder who you think should be writing reports on implementing carbon reduction plans? Greenies?

Garnaut was brought in to do a job. The gov’t had already promised to do something about climate change, as they had already accepted AGW. Garnaut merely outlined some practical options and their effects on our economy, and on CO2 output.

Your contention that AGW is an imperialist attempt to maintain dominance is interesting. I wonder how exactly it is you believe we can force China, India etc to accept the inherent limitations on their industrial growth that will accompany any significant carbon reduction target. If that is what you are getting at.

You talk about an “irrational zeal for derivatives”. That sounds like propaganda speak. Which derivatives are you talking about, or are you saying that all derivatives are bad?

TOYB understands that the vast majority of big business will suffer, some significantly, if they are forced to reduce their emissions. How will these imperialists be sidelined by the imperialists who will make money from the CO2 reduction plans? Doesn’t the fact that there are clearly competing interests here make a nonsense of the idea that AGW is a imperialist conspiracy?

TOYB

First, the David Harvey reference makes simplistic identification of “the new imperialism” with “the US”: the link's precis makes it clear that “the US” is the “empire” in question. Yet if we check America's situation over the last decade, it is obvious that most people in “the US” have been increasingly disenfranchised, ignored and abused – by contrast, the actual “empire” has been going great guns. I think the key context here is “globalization”, which implies every danger to national sovereignty, genuine government, and good governance, including for the US (perhaps especially so). I believe the hindsight we have now confirms that the neocon “Project for a New American Century” was a nasty con (pardon the pun). The goals and strategies of PNAC have been a disaster for US domestic harmony and US global projection. Whatever the vast overseas mayhem caused, and however many naïve Americans swallowed PNAC while enticed by its bullying swagger – at least early on - PNAC's domestic effect on the US only proves further the Bush—Cheney administration's cynicism and dishonesty. The US has been weakened profoundly, thereby itself subordinated more to the imperialist designs of globalizing, free-trade monetarist networks. Therefore, any such US-based imperialism should be understood properly as “fake patriotic” and actually “unAmerican” in a more logical, non-jingoistic sense. Enron, Halliburton, Abu Ghraib and Hurricane Katrina all symbolize just how truly “unAmerican” Bush—Cheney America has been: exported psychopathy, and imported corruption, impoverishment and disintegration.

Indeed "not all climate scientists are World Bank stooges" as you remind us, but WB hegemony is clear in the case of AGW dogma and publicity. I use the Gramscian term deliberately because I believe Gramsci would rather identify “hegemony” within AGW activism, not “the common sense” that you infer. I understand that Gramscian “common sense” describes essentially conservative and neophobe tendencies, which would be at odds with dogmatic “New Age” activism in AGW, whether purporting “leftist” or “ecologically responsible liberalist” agendas. Nonetheless, Gramscian “common sense” would not imply censorious and authoritarian treatment either when responding to specialized, collective dissent: such oppressive responses would rather characterize the

authoritarian intolerance of hegemonic power. My concern here is best demonstrated in the "open letter" by some 100 leading scientists to Ban Ki Moon during the Bali Climate Conference (see: http://www.nationalpost.com/most_popular/story.html?id=164002 and http://www.nationalpost.com/news/story.html?id=164004). It is extraordinary that such expert dissent goes largely ignored; it should compel serious reappraisal and publicity, as we should expect to happen in any academic - and especially scientific – field not so politicized. I cited that case elsewhere on OLO, and the pro-AGW response there was only a flippant, unsubstantiated shot at discrediting the dissident academics, with assumptions about “big business corruption”!

Following your argument's anomalous reliance upon some Gramscian doctrine, my most serious concern arises where you express easy accommodation of irrationality, uncritical thought, and susceptibility, even submission and unwitting aid to, successful hegemonic propaganda (“Most Australians accept AGW as an established fact”). Polling may well have indicated Australians' general fear about polar bears drowning to extinction and suburbs permanently flooded by rising tides, but does this not reflect the intensive exposure to such stories in the mass media via accredited “environmental reporters”, dubiously funded NGOs and – again – the more overtly oligarchical interests of international finance via the IPCC et al? Furthermore, polling of Australians has opened up other pits of fear, like intensely hostile and paranoid attitudes about Middle Eastern, African, and Indonesian travellers into or near Australian territorial waters, and about non-European migrants generally.

More fundamentally, your concession that I may be right reveals your argument's disturbing absence of sound ethical principle, implying also some (misguided) opportunism. There seems a sense of futility if not servility in claiming to “work with the flow of” a prematurely labelled Gramscian “common sense” in AGW, where dominant interests have sponsored AGW so energetically. In addition to the World Bank and ETS entrepeneurs, AGW activism also falls within the routine commercial modus operandi of privatized utility companies, for example. Electricity, water and other firms have used AGW repeatedly to justify various price hikes onto consumers – from “green/paperless” billing to advertising and incrementally punitive charges.

Mil-Observer

Harvey doesn’t make a simplistic equation ‘US=imperialism’. His book is a detailed exploration of the ‘capitalist and territorial logics of power’, i.e. accumulation by dispossesion (global but US-led) and the neo-con project. I agree that attempts by the US elite to maintain global dominance have disadvantaged most ordinary Americans - Chalmers Johnson writes well on this - and now that more Americans are waking up to this, perhaps we will see some positive political change in that country.

Hegemony is indeed underpinned by a conservative common sense. However, Gramsci also theorized that a counter-hegemony could be fashioned by working towards producing epochal shifts in that common sense. This is what I am talking about in relation to ecological economics. I am not suggesting ‘easy accommodation of irrationality’; I am pondering what is likely to be the most effective political strategy to work towards progressive change, given the current prevailing conditions, including the fear-mongering of the mass media. I am interested in how we can move beyond fear to positive action, without having to go through the necessity of telling large numbers of people that they have been brainwashed. I may be wrong, but I don’t think that that is likely to be a politically effective strategy.

I am more than happy to disagree with you politely on this, and I wish you luck in your efforts to convince most Australians that AGW is a globalist-funded hoax. I do take exception at your suggestion that mine is not an ethical approach; I think I have made it abundantly clear that my vision is for a socially just & environmentally sustainable future for this country & the planet, and that this requires transformative political and economic change. I fully accept, and said in a previous post, that AGW can be, and has been, co-opted by commercial interests. However it can also – and is being – employed in other ways to advance entirely different agendas. Far from being futile or servile, I see this as a potentially fruitful form of Gramscian counter-hegemonic politics. Tell us about your political strategy.

[TOYB: “Harvey doesn’t make a simplistic equation ‘US=imperialism’...”]

If you check the OUP summary of Harvey's book, the final sentence is crystal clear: “The compulsions behind the projection of US power on the world as a 'new imperialism' are here, for the first time, laid bare for all to see.” I did not claim that Harvey makes such a “simplistic equation” as "US=imperialism". I stated that he rather makes a “simplistic identification” - I think your explanation points to Harvey's separate, detailed equations of force projection around which he identifies a US empire. Therefore, Harvey's equations may be other than simplistic, but I maintain that his identified solution or sum of such equations is simplistic (and misleading or otherwise inaccurate).

[TOYB: “I do take exception...”]

I restate: “your concession that I may be right reveals your argument's disturbing absence of sound ethical principle, implying also some (misguided) opportunism.” Therefore, if you have doubt about the AGW dogma, then your pursuit of any AGW-based agendas will be in bad faith, thus unethical, whatever your “vision” purports as a goal. An implicitly graver ethical problem arises from the effects of ETS and emissions reduction on the poor in developing countries: if you have doubt about AGW dogma, how can you then justify efforts to deny such people the living standards enjoyed in the west during the 20th century? Hence my conclusion about your “easy accommodation of irrationality”.

In discussions with my fellow workers, AGW is a cause for general derision and disgust: it is intuitively clear that hegemony itself aims to proselytize AGW to adjust “the common sense” for hegemony's own purposes, but perhaps such processes fit more Brechtian not Gramscian conceptions about power maintenance.

Via simple demonstration of facts over time, identification with AGW dogma will have further discredited those avowedly “leftist” organizations which join the hegemons' worldviews. On matters of strategic formulation, pro-AGW activists' obvious loss of initiative, authenticity and – ultimately – credibility, promises to merely aid hegemony; there will be no “moral high ground” except that held by those non-compliant developing countries and my dissident friends.

Mil-Observer

I have read Harvey’s book cover to cover. It looks at the interplay and tensions between the recent projections of US power and the global spread of finance-driven monopoly capitalism. The implication of his argument - that the world may be entering another phase of inter-imperialist rivalry, perhaps resembling the late Victorian era – seems to have considerable validity. Sabre rattling – and more - appears much in evidence as the financial / economic crisis intensifies: this morning the US has violated Syrian sovereignty for the first time.

Re: AGW, I think the most reasoned stance is that, having regard to the extent of the scientific debate and conflicting evidence, at the present time, one cannot state with 100% confidence that it is happening, nor state with 100% confidence that it is not happening. It is a question of probabilities. You choose to believe it is not happening, categorically. I choose to believe that it probably is, but I’m prepared to keep an open mind. Neither stance it seems to me is per se immoral.

The real issue is what we do with our respective beliefs and choices. I have never said that I support any inter-governmental agreement that would maintain majority populations in developing countries in poverty. However we both know that the globalist AGW-agenda is far from being the only thing likely to keep these populations in poverty. There have been no restrictions on burning fossil fuel for the past 150 years and levels of poverty and inequality have fluctuated over that time, but recently intensified quite dramatically. A basic cause is the imperialist world system – whether it is US-led or not is really beside the point. And that is what has to change. A Northern-dominated ETS won’t help; equally if there is no ETS and no change, the Northern countries will capture & use most of the resources anyway, as they – we - have done for the past 500 years. Hence my interest in counter-hegemonic narratives & movements that can bring about major political - and behavioural - change in the North.

TOYB,

I never suggested doubts that you'd read (and comprehended) Harvey's book; I stated merely that Harvey's book obviously identifies “the US” as “the New Imperialism”, and that you carry much the same interpretation of facts. Your replies confirm that my statements do not misrepresent either Harvey or yourself on that basic point.

My main concern about such “New Imperialism” interpretations is that they seem to miss – almost entirely - the severe effects of globalized, free-trade capitalism on state sovereignty, including that of the US. How can war crimes / crimes against humanity be isolated to “the US” as a state entity when even the US military has had a dramatically reduced agency of initiative and design in such enterprises? Then there is the obviously globalized and transnational quality of all such enterprises. In short, if oligarchs care nothing for sovereignty, then all of sovereignty's symbolic trappings mean little under that aggressively globalist, monetarist and (almost) borderless oligarchical regime.

[TOYB: “The real issue...”] In fact, if I recall correctly, the real issue in our discussion is the disintegration of the neolibs' entire monetarist system, euphemized variously as “financial crisis”, “credit crunch”, “brink of recession/depression”, etc. Our digression into AGW/ETS pertained originally to that overriding context of the monetarists' collapse. It may be very interesting to extrapolate some existential or ontological considerations about “ what we do with our respective beliefs and choices”. However, to my trained perception your emphasis there smacks of such sweeping universality, ill-defined focus, and alienated (even blinkered?) individual subjectivity about personal “choice”, that it would keep us in precisely the same directionless vacuum as that occupied by neoliberalist/consumerist treadmills.

I'm unconvinced by your claim to grasp “probabilities” about AGW, so I maintain that you seem to “accommodate irrationality” there. Nonetheless, perhaps you can consider other “probabilities” on AGW: if World Bank men and other free-trade monetarists have been so compliant even complicit in policies causing this disastrous global market, would we not be misguided and irrational to ignore the high probability that such people are seriously wrong – if not fraudulent too – on AGW?