2008: We Learned What We Don't Know

It's the end of an era. We know that 2008, much like 1932 or 1980, marks a dividing line for the American economy and society. But what lies on the other side is hazy at best. The great lesson of the past year is how little we understand and can control the economy. This ignorance has bred today's insecurity, which in turn is now a governing reality of the crisis.

Go back to the onset of the crisis in mid-2007. Who then thought that the federal government would rescue Citigroup or the insurance giant AIG; or that the Federal Reserve, striving to prevent a financial collapse, would pump out more than $1 trillion in new credit; or that Congress would allocate $700 billion to the Treasury for the same purpose; or that General Motors would flirt with bankruptcy?

It was once believed that the crisis of "subprime" mortgages -- loans to weaker borrowers -- would be limited, because these loans represent only 12 percent of all home mortgages. Even better, they were widely held, diluting losses to individual banks and investors.

Wrong. Subprime mortgage losses (20 percent are delinquent) triggered a full-blown financial crisis. Confidence evaporated, because subprime loans were embedded in complex securities whose values and ownership were hard to determine. Similar doubts afflicted other bonds. Demand for all these securities shriveled. Lenders hoarded cash and favored safe U.S. Treasuries. Because investment banks and others relied on short-term debt (a.k.a. "leverage"), a loss of confidence and credit threatened failure. Lehman Brothers failed. The financial system had overborrowed and underestimated risk...

“Who could’ve known....”

I’m no financial wizard, but I pulled most of my money out of the market last January because I saw a crash coming. I didn’t know its exact nature, but it felt near. The housing market was a prime candidate, and it’s more than just the subprime stuff. There is a coalition between local government and building contractors and homeowners associations geared towards maximizing the intravenous extraction of funds from taxpayers and home owners. They build with no regard to residential infrastructure (water resources, sewage treatment overloads, roads, etc.), entice people in with cheap loans, rope them into homeowners assn.s (who take the heat off city council members and are backed by a relentless legal community) to keep the “property values” (i.e., the tax base) high, and then worry about the infrastructure as the need arises. At the federal level this was all highly supported by both legislative and executive branches, and has a lot to do with immigration policy, another lucrative aspect of the coalition for taxpayer fund extraction.

Now that the bubble has popped, taxpayers are paying the thieves for their losses, and your property taxes won’t be lowered. We may be having a crisis, but government is still very securely in the “extraction” mode.

Thw ongoing problems with the American economy is that the hard tough necessary choices and decisions are not being made. Everybody is acting like this is just more business as usual. It’s not. And until we get some really tough minded individuals elected to public office nothing is going to change. The American people probably will not like many of the hard tough decisions that will have to be made which is probably the reason why they keep electing the same bunch of dullards to public office over and over again. I feel this is especially true of liberals and politicians on the left. What is needed is more libertarian and ultra conservative folks who know how to balance state and federal budgets without raising taxes and to cut unnecessary and wasteful state and federal programs that are just nothing more than parasitic moneysuckers. Also I would like to see a nationwide effort to investigate and prosecute all waste, fraud and abuse in state-run and federally funded programs. You start by cutting out the fat and keep cutting rather than raising taxes on everybody esoecially in rotten economic times. The worst thing to do under such conditions is raise taxes. If the brakes are not applied to these bailouts we as a country are going to go right down the rabbit hole with Alice only we’ll find it a lot tougher to climb back out of it than Alice ever did. Everybody knows that the first thing you do when you find yourself in a deep hole is to stop digging. The state and federal governments better start getting their various acts together or they might find themselves caught up in a new nationwide 1776 American revolution. The American people will only stand so much.

Well said.

Politicians still don’t believe we understand what is going on, and don’t think we’re really mad about it. I wonder, really, how much more of this Americans can stand. So far we’ve shown a near infinite capability to tolerate these insults and the thievery, and to reward it with further power and office.

Bloody pitiful, actually.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.