Re Country girl's post of October 1st, you may be right referring to a coming depression and an ABC news reader may be a prophet. Yesterday, during a news break, the reader referred to 'the coming US depression', then quickly corrected herself with, 'er, recession'.

I remember as a child asking my parents why they did not think there would be another depression (they were in their 20s during the 1930s). They replied that Governments better understood the causes of of such disasters and had taken steps to prevent them through legislation and tight regulation.

What, did someone say that the financial system has been deregulated? Hold on to your hats!

Paul, that puts an interesting perspective on it. I wasnt aware of the ability to walk away in the US. I suppose its developed as a form of consumer protection against the power of the banks. I dont really agree with it though. Our bankruptcy rules at least make people take some degree of responsibility, even if some of the debt gets written off in the end. If this is truly the case I can see why the sub-prime debt became such a huge debacle there and not so much here.

For anybody wanting to know how the world financial system – especially banks - evolved into what it is today, here’s an excellent explanation of how debt is now used to create money and why we're surrounded by it.

http://video.google.com/videoplay?docid=-9050474362583451279

It runs about 47 minutes but it's got a lot of interesting background.

I suspect the bail-out alone isn’t going to fix much. Some significant RE-regulation may be required too.

Paul.L

"Lets not forget that the US system allows mortage customers to walk away from the loan and just hand back the house key, has a MASSSIVE role in this crisis."

These people have been left with nothing. The loan repayments, which comprised a large proportion of their income, have come to nought and the home they once dreamed of owning belongs to the bank as it always did. The banks, from the beginning, had always planned to onsell these homes as rises in repayment rates forced foreclosures. They only came unstuck, or the ones that didn't offload fast enough did, when the huge numbers of houses for sale saw values plummet.

Stop blaming the victims here. These people were conned into taking out loans the banks knew perfectly well they would never be able to repay. Those who've handed in their keys do have a 'massive role in this crisis' as you state, but the blame you are implicating they should wear needs to be sheeted home squarely to where it belongs, that is to the unbridled and unprecedented greed of the banks which sold and passed on these loans.

"It would actually be interesting to know the potential losses to those who oppose the bailout. My feeling is that very few of them have mortgages, superannuation or jobs on the line, and will happily sacrifice those that do, in pursuit of their hatred."

Members of congress on both sides of the house were absolutely swamped with pleas from the American public to reject George Bush's bailout proposal. I'm sure most of them had as much to lose as anyone else. It's not that those opposing the bailout, as it was first presented, want the system to crash. They just don't want a bailout that hands a blank cheque to Wall Street. They want something with real teeth. They want to see those who brought about this situation made to pay, they want stringent regulation to ensure it never happens again, and they want every dollar of taxpayer money used in the rescue package to be recouped with interest.

First I thought, let the bastards pay for the mess they made.

Then I thought, let's just look at the reality now, and see what is the best way forward for everyone.

Now I think, this is very suspicious. What guarantee do we have that this money will fix anything? I'd want some pretty stringent control over what this money is going to be used for, and who is going to profit from it. Just as sure as contracts in Iraq, these corporate bail outs will no doubt find their way into the hands of the creators of the problem, fund multi-million dollar salaries and be filtered to those least needy or deserving.

Further, you just watch our banks cry poor. The very same banks who made good profits last year, and fund a small percentage of their mortgage buisness from overseas, will not pass on any interest rate cuts. Petrol companies will absorb exise cuts into profits, Qantas keeps the fuel surcharge when petrol slides lower under 100, Child care centres absorb the 50% rebate, developers and real estate agents pocket the first homeowners grant. It's the way of the world. The bailout will be no different. It's a sham.

Browyn,

You say >> “These people have been left with nothing. The loan repayments, which comprised a large proportion of their income, have come to nought “

Blaming the victim? What absolute ROT. Where has the concept of personal responsibility gone? These people were greedy. They borrowed more than they could pay back and they have come slightly unstuck. But those people get to walk away.

In fact large numbers of speculators have simply walked away from their loans because house prices have gone down. Those people can rebuy the same house at a significantly reduced price when the bank puts it on the market. The loss caused by the collapse of the real estate bubble is then entirely borne by the bank, even though the speculator had a primary role in creating the bubble, and would have pocketed all of the profit if things had gone well.

You seem to think there is some kind of divine right to borrow money. That everyone should be able to get a loan and not worry about whether they can pay for it. This is absolute twaddle.

So let’s stop pretending that these people are victims of anything but their own greed, stupidity or ignorance. No one forced them to take loans.

On the other hand, the democrats, who stacked the boards of Fanny Mae and Freedie Mac instructed those institutions to make loans to low income and minority clients.

Let me make this clear. If you take out a loan, you should be responsible for paying it back. This is exactly the same standard you are holding the banks to. They made their bed, now they should lie in it. I would hold them to it as well, even if it meant they went under, but I believe the cost of allowing that to happen may be far greater than the cost of intervening.

I’m not denying banks have a full share of the blame, but two people signed those mortgages, the bank manager and the lender. Lets not pretend only one of them was being a tad greedy.