Thx for the thoughts.

I absolutely agree that the long-term solution is education of our children. To continue the immune system metaphor (and I’ll leave it at this post, before it becomes too silly), education is a form of vaccination. It prepares our children for the time when they confront the inevitable social pathogens that enter their life. It is also crucial in helping them differentiate between the “healthy” and “unhealthy” forms of outside intervention – the difference between Beethoven and Snoop Dog. They learn to reject the latter while embracing the former, just as our immune system learns to overlook beneficial flora in our intestines while neutralizing harmful bacteria like certain strains of E. coli.

The question that remains, however, is whether the current concentration of pathogens is so high that it endangers the entire body politic. Education, like vaccination, is a long term solution. If you already have a tetanus, a tetanus shot won’t won’t help you. You need antibiotics, and you need them quickly.

I am from the group that says we still have a chance; amputation is not necessary. Besides, amputation carries its own risks. That’s why we should do everything we can before giving in to radical surgery.

After all, we shouldn’t immediately assume we’d be the amputee. We could end up being the severed limb.

L3

The mortgage+derivative stack of over-leveraged debt was likely played by those scores of hundred billion foreign dollars. At the least by removing it all from everything but TBills during the last year; this info is easy to find. Add to this the gargantuan outpouring of wealth for oil @$130; how much of that as debit?

WalidP is researching indications of economic terrorism:
”
a re-reading of al Qaeda and other Jihadi literature, speeches and statements about the Silah al Naft (Weapon of Oil) and more particularly the calls by Ayman Zawahiri on “selling US dollars and buying Gold, ahead of American economic collapse”
“

The CRA forcing bad loans as the starting point. The protective reaction was MBS/CDS/derivatives. These new instruments were flawed by optimistic risk analysis, greed and the lack of government oversight (unregulated insurance).

Now while only a portion of the resold bill of goods is in default, they are bundled into
the debt instruments in such a fashion as to make the taxpayer liable for the total amount.

This is why I suggested using revenue bonds to
settle the liabilities and to service/retire those bonds directly by the income produced by those mortages not in default.

The bondholders would suffer some irregularities in payment but this would be counterbalanced by paying up to 15% on the face value of those bonds and by selling them at a 20 to 25% original discount.

This is a (primarily) market-based technique correcting statist induced difficulties. It takes the taxpayers off the hook and rewards the rescuers most handsomely.

“Fan and Fred blew up because politicians replaced normal risk analysis with social
engineering.” (Peter Boston)

In this past the news media would have blown the whistle on this scheme. But today the mainstream media blames the free market and Republicans for the disaster. So the Dems get a two-fer. They get the windfall from their frauds and get to blame the Republicans when the programs the Dems created explode.
==

MBS’s weren’t the problem. They were just mechanisms to trade income producing assets just like any other mechanism such as bond funds.

The problem was that these mortgages were *guaranteed by the US Government* through Fannie and Freddie. This made them trade at levels higher than they were actually worth. It also inflated the face value of the assets on which they were based.

The main problem, of course, was Congress’s passing of the CRA, which forced banks to make more risky loans. This law–like many others–may have been created by good intentions but allowed pressure groups like ACORN to intimidate banks into making a couple of million bad loans.

The cost of writing off these bad loans (mortgages) probably could have been absorbed over time. But the fact that they were *guaranteed by Fannie and Freddie* made a merely bad problem catastrophic.

Imagine if the government indemnified you against any losses you were to make in Las Vegas, while letting you keep the gains. What would you do? You would be foolish not to bet the farm.

The CRA forced banks to make loans to all applicants, regardless of creditworthiness.
The number of bad loans increased drastically due to lawsuits by activist groups alleging violation of the CRA, and by pressure on banks from demonstrations by Democratic-base groups like ACORN. As a result, banks put increasing amounts of assets into bad mortgages, while the MBS’s–backed by Fannie/Freddie, allowed banks that made these loans to exchange their unsound portfolios for cash.

In sum, massive government interference in the market destroyed the rational basis on which the mortgage industry had been based.
(My take on Ben Franklin’s excellent analysis)

Very late to this post but just to get it out there, I don’t disagree with the general tenor of your position that the interface between government and private capital is a breeding ground for corruption. Two points.

First, the “breeding ground” was tolerated for many years because it greased the wheels – both government and commerce – without too steep a price. The price got decidedly steeper in September 2008 causing a major rethink.

Second, never underestimate the power of the “means”. To claim that Democrats are more inventive at using government to provide opportunities than the (presumably Republican-dominated) financial services sector is at providing the tools is a tough sell. Government might be the snake pit but derivatives are the snake oil.