the writer dosnt have any clue>>,it was designed to encourage lending and to provide a hand-out to those who over-committed in terms of mortgage debt.>>
we are over commited because howard lied real the REAL inflation risk
we now have a higher debt/equity ratio for hosing than ever[because we dont expewct inflation/intrest to go up FAST

when it does ,THEN people will default>>However, the banks’ problems are not liquidity but risk of non payment.<<

they take risk[if they get it wrong they should lose

>Low interest rates will therefore make them even less likely to see value in using their own liquid resources other than in buying government bonds.<<

how well did this work in japan
bonds mean govt debt[that failed
no more intrest brearing bonds [that become securities
THE REAL PROBLEM
later you talk about 5 trillion mortgauge backed securities [BACKED ON 800 BIL of mortgauges

#>>Treasury advisers have been transformed from seeking to rein-in government spending to instigating a new era of government pump-priming.<<

we need to use the funds howard stashed away for the public service BEFORE GOVT LENDS [creates intrest repaying bonds[thats where we WENT WRONG last time

the 'trust'funds are for all ausytralia
[what tax paYER ISNT SEVING THE PUBLIC?
WHO DIDNT FUND TELSTRA[WHY SHOULD THE PUBLIC[TROUGH]SERVANTS KEEP THEIR DARN sper cash cow[while we pay intrest on NEW DEBT[bonds]

Triggering the present downturn
was the collapse of the $6.5 trillion US
mortgage backed
debt market.

Financial engineering created silk purses out of the sows’ ears of 800 billion in housing loans. Those loans were fuelled by GREED ,special intrests stealing everything via fraud[and fiat currency[and mates rates credit]

is "Moran" spelled correctly? i'm pretty sure there's supposed to be two O's.

Personal greed; people borrowing money they damn well knew that they could not afford; people not being able to control themselves or their money; people thinking that they have the right to live like rich people even if they are not rich; people wanting everything now: these are some of the the causes of the current economic distaster.

You can't legislate for fools, nor can you regulate them. More regulation of business and finance as a tool of stability is a total myth.

Both Howard and Rudd have been complicit in compounding the economic morass now enveloping Australia.

The regulatory agencies are somewhat paralysed because that is what the powerful banking, insurance, financial services lobby has influenced to allow continuance of reckless financial behaviour. Funding for ASIC was reduced last year and that agency is not adequately resourced to cope with all of the shabby corporate behaviour now emerging.

Successive federal governments have resisted pleas to prohibit immoral stock lending for superannuation funds. The Labor Party virtually controls a large segment of national savings through industry super funds so there appears to be murky reasons for their reluctance to introduce adequate protection of super investments.

The nation steered away from a national superannuation scheme when the compulsory superannuation levy was introduced. Infrastructure Australia supremo Rod Eddington claims governments do not have adequate funding available for infrastructure projects; but even an optional national scheme would provide an enormous financial reservoir for government borrowings to overcome infrastructure deficiencies. He is of course being blind to the abject failure of many public/private partnerships which heavily penalize taxpayers.

The first home owner grant scheme was ill-conceived and its recent expansion reflects very shallow appreciation of the overall national economic scenario by the major political parties. The fundamental problem with housing affordability in Australia is inflated land valuations created by state governments during the real estate boom of 2000 to 2004. Why waste public monies on handouts to subsidize the construction industry when such funds could be directed to state and local governments conditional upon revaluing land to pre-boom levels? The lending institutions are being well funded due to federal government benevolence so should be able to withstand any devaluation of their previous loan securities.

Alas; successive Prime Ministers of Australia have been ego driven autocrats lacking in leadership and vision. Kevin Rudd is inclined toward rash promises and obsessed with keeping his public commitments however unwise with dark clouds looming.

Australia has lost its way.

Mr Denmore,

No joke. It was the Democrats in Congress who strenghtened the Community Re-investment Act which provided penalties to force banks to lower their lending standards in order to lend to underprivilrdged and minorities. The Democrats had control of Fannie Mae and encouraged that organisation to buy these toxic loans from the banks. Fannie Mae was the first organisation to parcel and on sell these 'derivatives'.

The real estate 'bubble' was propelled by Greenspan's tweaking of interest rates, keeping recession away. Increased in rates in 2005 led to the property market stalling resulting in an inability of those with low start loans to refinance or sell above purchase price as their loans repayments increased.

You've not covered these earlier underpinning actions. Your post accurately detailed most of later occurrances.

I agree oversight activites was lacking but the regulation to do so was always in place. I disagree there was an absence of regulation.

I complain about how the Government is interfering. I've never suggested there shouldn't be Government involvement ... or regulation.

The only difference between your and Alan's positions is that one will result in a short sharp correction and the other will simply prolong the correction. Alan's answer would see a short period of pain. I don't think you'd said you'd accept your solution might lead to a period of prolonged pain or how long that period might be.

What do you do when interest rates reach zero and it also becomes impossible for governments to easily finance deficits?

I agree the IMF policies tended to be destructive for local people and am sympathetic to your view.

My solution targets wealth creation as opposed to doing nothing or simply supporting consumerism and mostly wasteful infrustructure spending.
Picking winners ... why not ... It's what the market usually does and those types of business will standout as our economy gets deeper into depression. And of course infrustructure spending is exactly that also... all about picking winners, as is propping up the presently uneconomic car makers.

Keith, I'm afraid that your argument about it all being the fault of the Clinton administration is a rather desperate talking point dreamed up in the blogosphere by Republicans during the presidential election campaign to deflect blame for the crisis from the spivs in the financial markets.

Yes, there may have been some lax lending under Fannie Mae and Freddie Mac in the late 1990s, but the worst that would have happened - had not the Dr Frankensteins of the derivatives world got involved - would have been a rise in defaults and a tightening of lending standards.

What CAUSED the crisis wasn't the initial relaxation of lending standards, but the bundling of these mortgages into obscenely complex derivative products, which banks subsequently leveraged to the heavens, while shifting the risk onto off-balance sheet vehicles. This way they escaped the oversight of prudential regulators.

You're right about Greenspan keeping monetary policy too loose. But Greenspan was the surpreme non-meddler. A life-long devotee of Ayn Rand and a member of the libertarian right, Greenspan thought he was getting out of the way of the uber-capitalists. Instead, he was throwing them a can of petrol and a couple of boxes of matches.

Now, we are all living with the consequences. By the way, while I'm no neo-libertarian, I'm not an old-fashioned Keynesian either. What I am is a pragmatist. And what's needed now is smart regulation that ensures that society does not in future have to carry the cost of excessive risk taking by institutions who benefit from implied government guarantees.

The plain fact is that global liberal market capitalism, as we know it, is on the brink of self-destruction. The people who will save it will be those who are not the victims of any ideology, but who put people first in framing public policy responses.