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The Financial Mess


Crocefisso

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Do you know why it came within a week of defaulting? It's because Republicans are bat[cabbage] crazy and held it ransom. We only came within a week of defaulting because of the debt ceiling. In effect, it's making Congress appropriate money they've already appropriated. It should be eliminated. There's a short-term political problem, and that's having Republicans control any branch of Congress. Republicans are pretty new to governing -- from 1931 to 1995, the Republicans had control of the House of Representatives only twice, and both times they had it for only a single two-year cycle. The history of the Senate is much the same. The Democrats took over the Senate in 1932 and held it with the same two brief interruptions (1946-47 and 1953-54) until the Reagan Revolution swept them into power in 1981. They lost their majority after the 1986 midterms and gained it back in 1994.

 

Moreover, if it came down to it, there were methods to go around Congress and the debt ceiling. We weren't going to default.

 

You can blame the republicans for the most recent crisis, you can't blame them (solely) for the terrible decisions that got us to this point.

I do realize that defaulting would probably not have happened but the fact that we came so close was scary enough.

 

When interest rates are this low, it makes a lot of sense. It's cheaper to spend now on infrastructure and investment than it has ever been (I think interest rates are at their lowest levels since WWII). When we have 9% unemployment and negative interest rates, there is no better time than now to spend money. Bill Gross says the same thing:

 

“Government must temporarily assume a bigger, not a smaller, role in this economy, if only because other countries are dominating job creation with kick-start policies that eventually dominate global markets.” But what about the deficit? “Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem.”

 

Gross goes on to offer some ideas for how the government can goose job growth, both in the short term and the long term. Some of them I find convincing, some of them I don’t. But his overall point is well-taken, and more subtle than some commentators are giving it credit for: Politicians have increasingly been pretending that deficit reduction slices, dices and blends. Don’t believe them. Cutting deficits tends to destroy jobs. And though the deficit matters in the long run, we need to survive the short run first.

 

Gross’s credentials as a deficit hawk are unimpeachable, but he’s arguing here that, to be a deficit hawk over the long term, you need to be jobs-focused now, as no economy with 9 percent unemployment is going to achieve the growth necessary to get its deficit under control. And he’s right. The question is whether his call for the government to refocus on jobs and brush aside fantasies that deficit reduction is also job creation will get as much attention as his concerns about debt and deficits.

 

Bill Gross: Deficit reduction can — and should — wait

 

I disagree with him - I can't really say any more than that. I think that if you take this opportunity to plunge yourself even further into debt, even if you do lower unemployment you can't do it enough to have significant impact on debt reduction in the future.

 

Imagine, for instance, that the united states had no debt whatsoever and was running a surplus every year for the past 10/20 years. Instead of almost crippling themselves with debt trying to kickstart the economy, they'd have the cash on hand to make a significant kick-start without borrowing at all.

 

This is workable. It's been done before - for example the city I live in (I realize a municipal government isn't the best example, but it is quite a large city) has been debt free for over thirty years. Taxes are fairly low and services are good - all because of a mayor who cares about prudent fiscal management. I can't speak to exactly what reserves we have but when the recession struck here they used stimulus money from the feds coupled with surplus's they had to kickstart the local economy, which from all reports was quite successful - and we're still completely debt-free to this day.

 

It's maybe what got Greece into this mess in the first place, but what got us into this mess into the first place was a global financial bubble combined with banking deregulation. Spain and Ireland were running sound budgets in 2007. And now all of the sudden they're in trouble? It's not because they took on too much debt, it's because of a global financial meltdown due to a collapsed housing bubble. It has [bleep] all to do with debt and deficits (again, except for maybe in Greece, which frankly shouldn't have been admitted into the Eurozone in the first place).

 

No, it doesn't have [bleep] all to do with debts and deficits. While I agree that every country is at the mercy of the worldwide financial situation, running a balanced budget with minimal debt makes it much easier to recover from a recession.

 

 

 

If someone offered you a negative interest loan over a 10 year period -- they are paying you to spend money -- you wouldn't do it? Even with the prospect of future growth? Every business spends money that they "don't have" because of the prospect of future growth and profits. I just spent money I didn't have to attend college. Are you saying I should have paid cash?

 

No, I wouldn't, because I firmly believe spending money you don't have is a terrible mistake. As a result, I saved like crazy throughout high school and paid for college in cash.

 

Are you looking forward to being saddled with several tens of thousands of debt when you graduate, or currently?

 

Fixing the short and medium term deficit is such small potatoes when compared with Medicare; it will slow growth and make the crisis worse. I don't think you realize just how crushing America's health care system is. If we had England's level of health care spending per capita, we would be running long-term budget SURPLUSES.

 

I admit I don't know - have a quick fact sheet? I am Canadian, after all.

 

I'd also be curious to hear your thoughts on the article I posted above. (first page)

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You can blame the republicans for the most recent crisis, you can't blame them (solely) for the terrible decisions that got us to this point.

I do realize that defaulting would probably not have happened but the fact that we came so close was scary enough.

 

Heh, I think I can blame about 80% on them. Clinton had budget surpluses upon leaving office, Alan Greenspan:

 

But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets. At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. This development should factor materially into the policies you and the Administration choose to pursue.

 

Translation: "We're projected to pay off the debt and deficit too fast, so I support Bush's tax cuts." He's since admitted that he was wrong on this issue, as well as being wrong on financial deregulation issues and the free market. The only blame that lies with Clinton was the continued banking deregulation that happened under his watch and his neoliberal agenda; however, it all started with Saint Ronnie Reagan.

 

I disagree with him - I can't really say any more than that. I think that if you take this opportunity to plunge yourself even further into debt, even if you do lower unemployment you can't do it enough to have significant impact on debt reduction in the future.

 

It's not really going into more debt when interest rates are negative. It might amount to more physical debt, but thanks to inflation it's actually not. But I find it odd that you disagree with Bill Gross, someone who knows more about government debt and deficits than pretty much everyone -- someone who has the ability, if he so chose, to plunge countries into forced austerity through bond markets.

 

Imagine, for instance, that the united states had no debt whatsoever and was running a surplus every year for the past 10/20 years. Instead of almost crippling themselves with debt trying to kickstart the economy, they'd have the cash on hand to make a significant kick-start without borrowing at all.

 

Debt is actually a good thing for countries to take on. Now, I agree that our debt is too large, but it will only exacerbate the problem if we cut spending right now. In fact, the entire reason the United States is such a power house is because of the creation of public debt, thanks to Alexander Hamilton's program "Assumption." All countries take on debt for growth, it's part of doing business in a globalized economy.

 

But you're only getting part of the macroeconomics right. You spend during a recession, save during a boom. We were saving during a boom, but Republicans believe in constant tax cuts to starve the government. Taxes are at their lowest point since the 1950's. Anyway, because of the political dogma of Republicans, they believe spending is ALWAYS bad, and we should ALWAYS cut spending (well, they say this, but they never actually do it with a Republican president...see below). This is ludicrous, and goes against everything you learn in Econ 101.

 

debt-chart.jpg

 

I don't actually entirely blame all of Reagan's deficits on him. He had a recession, so spending was expected to go up. But he also prescribed to voodoo economics (lowering taxes increases revenue...lol). Also, George Bush I was fairly fiscally responsible, as he started deficit reduction that continued under Clinton.

 

This is workable. It's been done before - for example the city I live in (I realize a municipal government isn't the best example, but it is quite a large city) has been debt free for over thirty years. Taxes are fairly low and services are good - all because of a mayor who cares about prudent fiscal management. I can't speak to exactly what reserves we have but when the recession struck here they used stimulus money from the feds coupled with surplus's they had to kickstart the local economy, which from all reports was quite successful - and we're still completely debt-free to this day.

 

Canada also didn't suffer from banking deregulation like the rest of the world, and you have the soundest banks in the world. Your model is based off of Alexander Hamilton's original plan (it didn't pass through our Congress). I wish we had your system of banking. we wouldn't be in this mess at all. Local governments are also quite different than national governments.

 

While I agree that every country is at the mercy of the worldwide financial situation, running a balanced budget with minimal debt makes it much easier to recover from a recession.

 

Of course, but i doesn't make sense to cut off the spigot right now when bond traders are screaming with their heads on fire SPEND MONEY!

 

No, I wouldn't, because I firmly believe spending money you don't have is a terrible mistake. As a result, I saved like crazy throughout high school and paid for college in cash.

 

Are you looking forward to being saddled with several tens of thousands of debt when you graduate, or currently?

 

I saved, too. But US schools are very expensive. I saved $15,000 from ages 15 to when I graduated at age 18. That was enough to pay for one year of school. If you don't think it makes sense to take on loans for investment, well, I don't know what to tell you. Of course I'm not looking forward to it, but I have a choice: a.) go to college and take out loans, or b.) don't go to college at all. It's not that much more debt over a 10 year period. $25,000 in interest over 10 years is definitely worth it when I get an advanced degree in a technical field with high pay-off.

 

I admit I don't know - have a quick fact sheet? I am Canadian, after all.

 

taming_the_deficit_figure3.jpg

 

This graph shows long-term budget projections for the United States and then adjusts these projections under the assumption that it has the same per capita health care costs of Germany, Canada, Spain, and the United Kingdom. As can be seen in all of these cases, the United States is projected to run enormous surpluses. For example, if the United States had the same per capita health care costs as Canada, its budget surplus would be equal to 0.13 percent of GDP by 2050. By 2080, its budget surplus would be 2.52 percent of GDP. In short, the budget problem facing the United States is almost entirely an issue of dealing with an out of control health care system.

 

I'd also be curious to hear your thoughts on the article I posted above. (first page)

 

I'll go read it now :)

 

Edit: Read it, and I had to stomach my way through it because its author is Mark Steyn. In sum, I think a lot of it is rubbish. He seems to deny the need for economic stimulus whatsoever. Hey, let's just forget everything we've learned and go back to the days of Andrew Mellon! Apparently he also opposed "Obamacare," which actually lowers the deficit (and there's evidence that it's lowering the cost of Medicare, too). It wasn't something I particularly liked -- it was, after all, the Republican health care bill of the 1990's that was pimped by the Heritage Foundation. But it was better than nothing. Sure, the deficits are "unsustainable," but no one is talking about continuing them into the next millennium. In sum, it's standard Mark Steyn: when Democrats spend money, it's bad.

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Heh, I think I can blame about 80% on them. Clinton had budget surpluses upon leaving office, Alan Greenspan:

 

But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets. At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. This development should factor materially into the policies you and the Administration choose to pursue.

 

Translation: "We're projected to pay off the debt and deficit too fast, so I support Bush's tax cuts." He's since admitted that he was wrong on this issue, as well as being wrong on financial deregulation issues and the free market. The only blame that lies with Clinton was the continued banking deregulation that happened under his watch and his neoliberal agenda; however, it all started with Saint Ronnie Reagan.

 

But if you go beyond Clinton, the states has been in debt and run deficits forever - and both republican and democratic congresses and presidents have been responsible.

 

It's not really going into more debt when interest rates are negative. It might amount to more physical debt, but thanks to inflation it's actually not. But I find it odd that you disagree with Bill Gross, someone who knows more about government debt and deficits than pretty much everyone -- someone who has the ability, if he so chose, to plunge countries into forced austerity through bond markets.

 

Yes, it amounts to more physical debt, which is my problem with it.

 

 

Debt is actually a good thing for countries to take on. Now, I agree that our debt is too large, but it will only exacerbate the problem if we cut spending right now. In fact, the entire reason the United States is such a power house is because of the creation of public debt, thanks to Alexander Hamilton's program "Assumption." All countries take on debt for growth, it's part of doing business in a globalized economy.

 

But you're only getting part of the macroeconomics right. You spend during a recession, save during a boom. We were saving during a boom, but Republicans believe in constant tax cuts to starve the government. Taxes are at their lowest point since the 1950's. Anyway, because of the political dogma of Republicans, they believe spending is ALWAYS bad, and we should ALWAYS cut spending (well, they say this, but they never actually do it with a Republican president...see below). This is ludicrous, and goes against everything you learn in Econ 101.

 

debt-chart.jpg

 

I don't actually entirely blame all of Reagan's deficits on him. He had a recession, so spending was expected to go up. But he also prescribed to voodoo economics (lowering taxes increases revenue...lol). Also, George Bush I was fairly fiscally responsible, as he started deficit reduction that continued under Clinton.

 

I agree that for the most part, republican financial policy is garbage. But how long can we keep increasing spending for? I can't see it having a big enough effect on the economy.

 

 

 

I saved, too. But US schools are very expensive. I saved $15,000 from ages 15 to when I graduated at age 18. That was enough to pay for one year of school. If you don't think it makes sense to take on loans for investment, well, I don't know what to tell you. Of course I'm not looking forward to it, but I have a choice: a.) go to college and take out loans, or b.) don't go to college at all. It's not that much more debt over a 10 year period. $25,000 in interest over 10 years is definitely worth it when I get an advanced degree in a technical field with high pay-off.

 

Right, so that's a time when debt is acceptable. I just think that the huge majority of the things americans have gone into debt over doesn't fit those qualifications.

 

 

This graph shows long-term budget projections for the United States and then adjusts these projections under the assumption that it has the same per capita health care costs of Germany, Canada, Spain, and the United Kingdom. As can be seen in all of these cases, the United States is projected to run enormous surpluses. For example, if the United States had the same per capita health care costs as Canada, its budget surplus would be equal to 0.13 percent of GDP by 2050. By 2080, its budget surplus would be 2.52 percent of GDP. In short, the budget problem facing the United States is almost entirely an issue of dealing with an out of control health care system.

 

Interesting, thanks.

 

I'll go read it now :)

 

Edit: Read it, and I had to stomach my way through it because its author is Mark Steyn. In sum, I think a lot of it is rubbish. He seems to deny the need for economic stimulus whatsoever. Hey, let's just forget everything we've learned and go back to the days of Andrew Mellon! Apparently he also opposed "Obamacare," which actually lowers the deficit (and there's evidence that it's lowering the cost of Medicare, too). It wasn't something I particularly liked -- it was, after all, the Republican health care bill of the 1990's that was pimped by the Heritage Foundation. But it was better than nothing. Sure, the deficits are "unsustainable," but no one is talking about continuing them into the next millennium.

 

But at some point action has to be taken against them. Sure, no one is talking about continuing them into the next milennium, only for the next ten years. And then ten years from now, the next ten years after that.

 

At some point, we have to make the hard choices and fix this problem - that's the bottom line. And I'd rather see it done sooner over later.

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Very interesting topic - glad someone finally brought this up. I myself have nothing to add as i know nothing of it really, i just read what others say and try to get a general picture :D Alot of the financial terms you guys are using are something i've never heard, so pardon me if i'm a little confused. After watching the film 'Inside Job' on the 2008 crisis i did understand some of the issues at hand and now this topic has come at an appropriate time.

 

I said i wouldn't talk since i don't really know anything on the matter, but i'll break that promise: The two main people who i see debating at the moment in this thread are just bringing up arguments based on personal beliefs, in other words i think they lack figures or stats to back them up or arguments as to why increasing spending won't work. I've seen the illustrations you guys have brought forth, i didn't understand some of them so perhaps i am wrong about that part. Perhaps i am wrong here.

 

I also don't think this problem can fully be solved until the grip the banks and Wall Street has on the government is loosened. As long as Wall Street and the big banks dictate the economy of the US (hence the world) and do anything to make a few individuals rich, then we can philosophise on and on about how the economy should be steered and what policies to adopt, to no avail. People have been educated into spending, buying, consuming all they need and don't need, for the hell of it. That's capitalism. People in it have a consumerist mentality.

 

Perhaps a solution to that would be to better educate people in this, but how, when universities are also pretty much under the control of the afore-mentioned bankers and economists (that's something i picked up from the movie :D). By the way, where i live the best education you can hope for is still state-funded education, which is free for the most part up until University, and even there about half the people don't pay anything because they have a scholarship.

 

I hope i didn't say too much rubbish :D

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If you educated people into buying only what they actually need the economy would flop terribly.

True, but it is human nature to be excessive and greedy, so there's no danger of that happening. Machiavelli summed it up nicely:

 

One can make this generalisation about men: they are ungrateful, fickle, liars, and deceivers, they shun danger and are greedy for profit; while you treat them well, they are yours.


"Imagine yourself surrounded by the most horrible cripples and maniacs it is possible to conceive, and you may understand a little of my feelings with these grotesque caricatures of humanity about me."

- H.G. Wells, The Island of Doctor Moreau

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debt-chart.jpg

 

I don't actually entirely blame all of Reagan's deficits on him. He had a recession, so spending was expected to go up. But he also prescribed to voodoo economics (lowering taxes increases revenue...lol). Also, George Bush I was fairly fiscally responsible, as he started deficit reduction that continued under Clinton.

 

I agree that for the most part, republican financial policy is garbage. But how long can we keep increasing spending for? I can't see it having a big enough effect on the economy.

The President does not write the budget, the House of Representatives does. During Reagan's, Bush Sr's, and the first half of Clinton's administration, democrats controlled the house. During the second half of Clinton's administration, republicans controlled both the House and the Senate.

 

More detail here: http://uspolitics.about.com/od/usgovernment/l/bl_party_division_2.htm

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debt-chart.jpg

 

I don't actually entirely blame all of Reagan's deficits on him. He had a recession, so spending was expected to go up. But he also prescribed to voodoo economics (lowering taxes increases revenue...lol). Also, George Bush I was fairly fiscally responsible, as he started deficit reduction that continued under Clinton.

 

I agree that for the most part, republican financial policy is garbage. But how long can we keep increasing spending for? I can't see it having a big enough effect on the economy.

The President does not write the budget, the House of Representatives does. During Reagan's, Bush Sr's, and the first half of Clinton's administration, democrats controlled the house. During the second half of Clinton's administration, republicans controlled both the House and the Senate.

 

More detail here: http://uspolitics.about.com/od/usgovernment/l/bl_party_division_2.htm

 

Oh, ok, so I get it now. All the spending is the Democrats fault! And then, the presidents can't take responsibility for it at all (except for when Democrats are president). Whatever, dude. The president submits a budget, and the Congress changes it and passes it. Fact. If the spending is too much, the president can veto it. Fact. Reagan wanted more spending than was actually allotted by Tip O'Neill. Fact. [bleep] Cheney: "Reagan proved deficits don't matter." Fact. Just admit it: your political party is always completely and totally fiscally irresponsible. They never pay for [cabbage]. During Republican presidents, they raise spending, and they cut taxes. They bring in new programs and new wars, and refuse to raise taxes to pay for them. And then Democrats are forced to clean up their mess. We never hear about the deficit until a Democrat is president. Stop being a hack. I was charitable to George Bush I: even though the deficit and debt increased under him, I give him credit for raising taxes and beginning tackling the deficit that continued under Clinton. In reality, what happened is that he presided over a recession and the necessary bailout from the Savings and Loan crisis, which bloated the deficit despite his (eventually successful) efforts to tame it. You've been reading too much Megan McArdle.

 

“I am not worried about the deficit. It is big enough to take care of itself.”

~Ronald Reagan

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I also don't think this problem can fully be solved until the grip the banks and Wall Street has on the government is loosened. As long as Wall Street and the big banks dictate the economy of the US (hence the world) and do anything to make a few individuals rich, then we can philosophise on and on about how the economy should be steered and what policies to adopt, to no avail. People have been educated into spending, buying, consuming all they need and don't need, for the hell of it. That's capitalism. People in it have a consumerist mentality.

 

 

Just saw this, and felt compelled to point out a few things.

 

a) The consumerist mentality did not create capitalism, not has the capitalist system encouraged people to be consumerist and greedy. It's been human nature to be greedy, and the capitalist system resulted from that.

b) By Wall Street I assume you mean the stock-exchange. I cannot envisage a future where it doesn't remain fundamental to the financial system of the US, just as they are in other countries.

c) Splitting up banks is fundamentally a good idea, irrespective of the arguments against it.


"Imagine yourself surrounded by the most horrible cripples and maniacs it is possible to conceive, and you may understand a little of my feelings with these grotesque caricatures of humanity about me."

- H.G. Wells, The Island of Doctor Moreau

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a) The consumerist mentality did not create capitalism, not has the capitalist system encouraged people to be consumerist and greedy. It's been human nature to be greedy, and the capitalist system resulted from that.

 

Every day, we're bombarded with advertisements in every medium telling us to consume anything and everything. Greed may be in our nature, but capitalism is stoking it.

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Yes, indeed it is. However, breaking up the banks might sound good in theory, but I know of no one person who has provided a legal and feasible way to accomplish this. It's the same discussion that happened during the bailout debate. A lot of leftists said nationalization would be better, as it would clean up the mess immediately, even though it would be more expensive. Well, I agree, nationalization would have been better. But there was no legal mechanism for doing so. Outside of receivership, conservatorship, or bankruptcy, there is no legal mechanism for unilaterally imposing losses on creditors of bank holding companies. No one advocating for that could give me a reasonable solution, so I therefore supported Geithner's plan.

 

So as to big banks and breaking them up. Warren Buffet recently in an interview said, "No, no, no" to the question. I agree with him. I think the idea that "too big to fail, too big to exist" idea is just sillyit betrays a fundamental lack of knowledge about the way modern financial markets work.

 

As for capitalism, it could possibly destroy itself, just as Marx predicted. As a principle matter, Marx had it mostly right. What he did not anticipate however is just how well capitalists could sell their ideas to the underclass: hegemony. Capitalists have never had a proper intellectual response to the working surplus. That and exchange value are two of the most brilliant concepts ever configured. If this crisis is allowed to continue, capitalism itself might again be threatened just as it was during the Great Depression.

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As for capitalism, it could possibly destroy itself, just as Marx predicted. As a principle matter, Marx had it mostly right. What he did not anticipate however is just how well capitalists could sell their ideas to the underclass: hegemony. Capitalists have never had a proper intellectual response to the working surplus. That and exchange value are two of the most brilliant concepts ever configured. If this crisis is allowed to continue, capitalism itself might again be threatened just as it was during the Great Depression.

The problem I see with this statement is that: first, in a world that almost entirely capitalist, it's difficult to imagine the 'system' collapsing over anything more than quite a few successive generations before it's gone. Second, there is no credible ideological or practical alternative to capitalism that is not essentially atavistic and pre-industrial (other than failed central planning). Clearly such a system would be untenable in the modern world.


"Imagine yourself surrounded by the most horrible cripples and maniacs it is possible to conceive, and you may understand a little of my feelings with these grotesque caricatures of humanity about me."

- H.G. Wells, The Island of Doctor Moreau

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Well I don't know what would take its place, but it's not hard to imagine the masses of the people getting so pissed with our financial elites and challenging the system. But consider this:

 

Sometimes people say that there is no real left-wing in America, and that's kind of true in Britain, too. But we do have a left-wing. It's just a left-wing designed to kill the seductive power of communism and to build a bulwark against anarchism. Different countries chose different ways of responding to the economic catastrophes of the 1920's and 1930's. The Russians became totalitarian. Europe succumbed to fascism. We chose a New Deal. It was a middle road. It provided a safety net and tolerable working conditions. It created a huge middle class. It didn't arouse the far right or far left instincts of the nation, but put them into sleep mode. Now we're back to 1920's level of income disparity. Conservatives are attacking every aspect of the New Deal. What rich people seem to be forgetting is that the opposite of the New Deal is not some idyllic paradise of free-market bliss. The opposite is rampaging mobs who light [cabbage] on fire just to show you that they can do whatever they want. Eventually, that can include burning down your business or your house, or, maybe, even taking your life.

 

It's not just income disparity that's a problem. Consider how this all started. A bunch of smart people set up a kind of scam using complex financial instruments that no one can understand. They got rich beyond all imagination, while the rest of us lost our jobs, lost our retirement money, lost, in some cases, our homes. And then we were told that there was no money for our cops, no money for our firefighters, our nurses, our teachers. And next we'll be told that our Social Security check will be smaller and we'll have to wait another year or two to get our Medicare. Meanwhile, the rich, represented ably by the Republicans, refuse to pay one dime in extra taxes.

 

That provides the tinder to all sorts of chaos. I'm not sure what provides the match, but we could be heading for a double-dip recession -- perhaps that's it.

 

edit: [cabbage], just look at this crap from my governor:

 

Republicans are also pushing back on Obama's plan to extend emergency unemployment benefits. Gov. Bob McDonnell (R-Va.) said on Sunday that, while he would "consider" supporting the payroll tax cuts, he is less enthusiastic about unemployment insurance.

 

"I don't think that creates jobs," he said on CNN's "State of the Union." "It lessens the pain. The problem is we need to have things that create jobs, not just promote benefits for people that are not working."

 

The last thing you'd want to do is "lessen the pain" of the American people. Makes 'em weak. Maybe we could institute a prospective tax for these lazy malcontents, in which we bill them later for taxes they should have been paying when they were unemployed.

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Oh, ok, so I get it now. All the spending is the Democrats fault! And then, the presidents can't take responsibility for it at all (except for when Democrats are president). Whatever, dude. The president submits a budget, and the Congress changes it and passes it. Fact. If the spending is too much, the president can veto it. Fact. Reagan wanted more spending than was actually allotted by Tip O'Neill. Fact. [bleep] Cheney: "Reagan proved deficits don't matter." Fact. Just admit it: your political party is always completely and totally fiscally irresponsible. They never pay for [cabbage]. During Republican presidents, they raise spending, and they cut taxes. They bring in new programs and new wars, and refuse to raise taxes to pay for them. And then Democrats are forced to clean up their mess. We never hear about the deficit until a Democrat is president. Stop being a hack. I was charitable to George Bush I: even though the deficit and debt increased under him, I give him credit for raising taxes and beginning tackling the deficit that continued under Clinton. In reality, what happened is that he presided over a recession and the necessary bailout from the Savings and Loan crisis, which bloated the deficit despite his (eventually successful) efforts to tame it. You've been reading too much Megan McArdle.

 

I am not worried about the deficit. It is big enough to take care of itself.

~Ronald Reagan

 

Just to let you know (if you're too slow to figure it out), you're on my ignore list.

 

It's posts like this where you take everything I write as a personal insult to you and your beliefs. I'll debate issues and ideas, but I refuse to argue at a personal level, something you haven't quite figured out how to do yet. I can agree to disagree, you may have noticed in other threads that I disagree with others all the time; we're not at each other's throats.

 

In case you've missed it, I don't encompass everything the GOP stands for in the past 100 years; I disagree with quite a few of their policies. The fact that you can't separate me and the RNC is particularly frustrating, and it's part of the reason why I'm not going to respond to you.

 

I can't stand how you repeatedly attack me. Each time you call me a hack only goes to show that you can't separate your emotion from an intellectual discussion.

 

Have a nice life,

 

-sees_all1

99 dungeoneering achieved, thanks to everyone that celebrated with me!

 

♪♪ Don't interrupt me as I struggle to complete this thought
Have some respect for someone more forgetful than yourself ♪♪

♪♪ And I'm not done
And I won't be till my head falls off ♪♪

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Oh, ok, so I get it now. All the spending is the Democrats fault! And then, the presidents can't take responsibility for it at all (except for when Democrats are president). Whatever, dude. The president submits a budget, and the Congress changes it and passes it. Fact. If the spending is too much, the president can veto it. Fact. Reagan wanted more spending than was actually allotted by Tip O'Neill. Fact. [bleep] Cheney: "Reagan proved deficits don't matter." Fact. Just admit it: your political party is always completely and totally fiscally irresponsible. They never pay for [cabbage]. During Republican presidents, they raise spending, and they cut taxes. They bring in new programs and new wars, and refuse to raise taxes to pay for them. And then Democrats are forced to clean up their mess. We never hear about the deficit until a Democrat is president. Stop being a hack. I was charitable to George Bush I: even though the deficit and debt increased under him, I give him credit for raising taxes and beginning tackling the deficit that continued under Clinton. In reality, what happened is that he presided over a recession and the necessary bailout from the Savings and Loan crisis, which bloated the deficit despite his (eventually successful) efforts to tame it. You've been reading too much Megan McArdle.

 

“I am not worried about the deficit. It is big enough to take care of itself.”

~Ronald Reagan

 

Just to let you know (if you're too slow to figure it out), you're on my ignore list.

 

It's posts like this where you take everything I write as a personal insult to you and your beliefs. I'll debate issues and ideas, but I refuse to argue at a personal level, something you haven't quite figured out how to do yet. I can agree to disagree, you may have noticed in other threads that I disagree with others all the time; we're not at each other's throats.

 

In case you've missed it, I don't encompass everything the GOP stands for in the past 100 years; I disagree with quite a few of their policies. The fact that you can't separate me and the RNC is particularly frustrating, and it's part of the reason why I'm not going to respond to you.

 

I can't stand how you repeatedly attack me. Each time you call me a hack only goes to show that you can't separate your emotion from an intellectual discussion.

 

Have a nice life,

 

-sees_all1

 

But you are a hack. When you bring in a link to divert all attention away from Republican presidents "because Democrats controlled Congress and write the budget" (something I even already said earlier to prove that Republicans have little experience in governing), it's called being a hack for that party to take away the blame. To a certain point, I'm a hack for Democrats. I'm not going to criticize the health care bill as much as I would if a Republican passed it, for example, because it harms my own party -- even though I really didn't like the bill at all (the bill has also kept me from losing my health insurance). I'll criticize it more in certain company, but not in public when I'm trying to convince people (because in arguing it's not about convincing, but about dominance...and that involves mockery in a lot of cases). That's called being a hack. Why can't you just accept it? Activists, partisans, and hacks all have a role to play in politics; accept your role and carry on.

 

Back to the thread:

 

What does the bond market want at this moment of economic peril?

 

As it happens, two leading bond traders have strong opinions — though not what the Clinton-era populists would have expected.

 

Austerity? Yes, say Bill Gross, a Republican, and Mohamed El-Erian, a Democrat, the chief investment officers of the giant bond fund Pimco. They support curbs on entitlement spending.

 

But that is for the long term. Right now, they argue, the government needs to arrest America’s dangerous economic slide.

 

In fact, their prescriptions are more aggressive than any the White House has proposed or appears to be contemplating for President Obama’s planned speech in September. Among them: direct federal hiring to reduce unemployment and increase lagging demand.

 

Mr. Gross, a billionaire acclaimed for his early warnings that the dot-com and subprime mortgage bubbles would burst, said, “Capitalism in its raw form can’t pull us out of this hole.”

 

More: Spend Now, Save Later, Bond Fund Leaders Say

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I'd be interested to see an argument from those who believe the euro is viable long-term as to exactly why, without fiscal (and/or political) union. Even Eurobonds come under that category, so I really can't see how they could argue that the euro is viable simply as it is. It'd make for interesting discussion.


"Imagine yourself surrounded by the most horrible cripples and maniacs it is possible to conceive, and you may understand a little of my feelings with these grotesque caricatures of humanity about me."

- H.G. Wells, The Island of Doctor Moreau

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  • 2 weeks later...
It's not just income disparity that's a problem. Consider how this all started. A bunch of smart people set up a kind of scam using complex financial instruments that no one can understand. They got rich beyond all imagination, while the rest of us lost our jobs, lost our retirement money, lost, in some cases, our homes. And then we were told that there was no money for our cops, no money for our firefighters, our nurses, our teachers. And next we'll be told that our Social Security check will be smaller and we'll have to wait another year or two to get our Medicare. Meanwhile, the rich, represented ably by the Republicans, refuse to pay one dime in extra taxes.

 

But you're missing the whole point behind these seemingly gluttonous complex financial instruments - it was all done with good intention. They did it to make the world as a whole stronger and less dependent on monetary possessions. And that is why I would like to give a big thanks to Satan for letting humanity shine at its darkest of times.

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It's not just income disparity that's a problem. Consider how this all started. A bunch of smart people set up a kind of scam using complex financial instruments that no one can understand. They got rich beyond all imagination, while the rest of us lost our jobs, lost our retirement money, lost, in some cases, our homes. And then we were told that there was no money for our cops, no money for our firefighters, our nurses, our teachers. And next we'll be told that our Social Security check will be smaller and we'll have to wait another year or two to get our Medicare. Meanwhile, the rich, represented ably by the Republicans, refuse to pay one dime in extra taxes.

 

But you're missing the whole point behind these seemingly gluttonous complex financial instruments - it was all done with good intention. They did it to make the world as a whole stronger and less dependent on monetary possessions. And that is why I would like to give a big thanks to Satan for letting humanity shine at its darkest of times.

 

Heh, I lol'd.

 

Oh, maybe our leaders can haz economix lesson?

 

After more than a year of aggressive budget cutting by European governments, an economic slowdown on the continent is confronting policymakers from Madrid to Frankfurt with an uncomfortable question: Have they been addressing the wrong problem?

Is austerity killing Europe's recovery?

 

Truly, idiots. You know the question "are they stupid or evil?" The answer is probably 10% are both, 25% are evil, and 65% are stupid as [cabbage]. These are the kids who went to your high school and you were like, "Man that person is stupid," yet somehow through connections they end up ruling the world.

 

Meanwhile, Iceland is on its way to steady growth after they told their bankers to go f**k themselves:

 

A new and significantly smaller banking system has emerged from the crisis, with substantial private sector involvement. The banking system now holds assets of about 200 percent of GDP (one-fifth the size of the system pre-crisis) and is comprised of 14 institutions (23 before the crisis). This downsizing was largely achieved by transferring domestic assets and deposits to new institutions and imposing losses on general unsecured creditors. Work to address legacy vulnerabilities in the financial system (including the high level of nonperforming loans, loan and deposit concentration, and financial imbalances) is progressing. In particular, household and corporate debt restructuring is finally advancing and will help restore bank and private sector balance sheets.

IMF report

 

Also, 0 jobs created in the month of August in America. The answer is obviously austerity and tax cuts for rich people. Also, raise interest rates for good measure!

 

Edit: A little bit of non-snark commentary: This "recovery" is extremely ironic in the United States because this is precisely the policy prescription that the Cons say they want. 17,000 private sector jobs created, 17,000 public sector jobs lost. Over the entirety of Obama's presidency, we've seen the government shrinking in terms of employees. Conservatives complain about the results because the President is a Democrat named Barack Obama. But the policy result is what conservatives say they want. Steady cuts to the government sector, offset somewhat by private sector growth.

 

The result in the liquidity trap is exactly what we're getting: stagnation.

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  • 2 weeks later...

Personally i can see the world being a very different place in even 5-10 years time, yeah at the moment

the worlds super powers are USA CHINA RUSSIA UK. the UN at the moment in time shows little punch behind it anymore,

than what it had before world trade will seize up cause banks will almost completely stop lending cause there greedy teletubbys,

from this i can see massive black outs massive power cuts oil lines locked off making the worlds super powers country's

like Iraq if america leaves there australia and saudi.

 

All i can say is invest in iraq now while you can the place is a gold mine ready to rocket america will invest in iraq

setting up a soo called democratic goverment giving space to invest in before usa collapses

lets face it its already started their global credit rating has been downgraded.

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Personally i can see the world being a very different place in even 5-10 years time, yeah at the moment

the worlds super powers are USA CHINA RUSSIA UK. the UN at the moment in time shows little punch behind it anymore,

than what it had before world trade will seize up cause banks will almost completely stop lending cause there greedy teletubbys,

from this i can see massive black outs massive power cuts oil lines locked off making the worlds super powers country's

like Iraq if america leaves there australia and saudi.

 

All i can say is invest in iraq now while you can the place is a gold mine ready to rocket america will invest in iraq

setting up a soo called democratic goverment giving space to invest in before usa collapses

lets face it its already started their global credit rating has been downgraded.

Russia won't be a superpower again anytime soon.The UK will never be a superpower again on it's own, and right now the EU becoming anything more than it is now is unlikely due to the current euro crisis. If we're talking 50 years from now, the best guesses would be Brazil, India, China and America. America would be wise to back India over Pakistan, the last thing they need is India and China becoming close.

 

World trade won't seize up. The world is becoming more and more globalized, and the Saudis need America's money as much as America needs their oil. Even if alternative energy can replace most of the need for oil for power, oil is still needed for plastics and other applications. (Although us Canadians have plenty up here, if your idiot politicians would stop talking about the oil sands like it's the worse thing ever, then spewing crap about 'clean coal')

 

Banks don't make any money if they don't loan money out. The '08 economic crisis was caused by banks being too happy to lend, not by them stopping. Not sure how this leads to power outages and America leaving Iraq. If anything leaving Iraq would help America's relations with the Islamic world, along with being open and supportive of the new governments formed in the aftermath of the Arab Spring. Iraq really isn't a gold mine when you don't have the support of the people. Better to have good relations with them than to forcefully occupy them.

 

As for America collapsing, if it does happen it'll be like Great Britain and not like Rome. The credit rating issue was less of a deal than the media blew it up to be anyways.

 

I apologize if this post seems like I'm rambling. It's 1 in the morning and I'm resisting all my urges to troll.

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As for America collapsing, if it does happen it'll be like Great Britain and not like Rome. The credit rating issue was less of a deal than the media blew it up to be anyways.

 

 

Can't quite see the difference here. I was pretty sure that both declined over quite a long period of time, rather than as suddenly as say Nazi Germany, though I must be wrong. Or is the connection that the Roman Empire ultimately fell violently, and the British rather peacefully (by in large).


"Imagine yourself surrounded by the most horrible cripples and maniacs it is possible to conceive, and you may understand a little of my feelings with these grotesque caricatures of humanity about me."

- H.G. Wells, The Island of Doctor Moreau

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As for America collapsing, if it does happen it'll be like Great Britain and not like Rome. The credit rating issue was less of a deal than the media blew it up to be anyways.

 

 

Can't quite see the difference here. I was pretty sure that both declined over quite a long period of time, rather than as suddenly as say Nazi Germany, though I must be wrong. Or is the connection that the Roman Empire ultimately fell violently, and the British rather peacefully (by in large).

The latter. The fall of Rome sent Italy into a mess of fighting warlords and the lands of Western Europe into the Dark Ages. The nation of Rome became non-existent, if you don't count the Byzantines...which wasn't as powerful as the old Rome.

 

Compare this to Britain where it lost superpower status, yet it had influential power. It wasn't split in two nor was the homeland a scourge of in-fighting.

"The cry of the poor is not always just, but if you never hear it you'll never know what justice is."

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America's power isn't going anywhere, it's just going to be more shared. Barring some unforeseen occurrence, I don't think America is really "going anywhere" anytime soon. Certainly not within a few decades. As was stated, power will be more shared with Brazil and China/India -- EU being another power broker together as one unit, assuming it can survive (again, it's important to note the difference between the EU and the Zone). Japan has a huge demographics problem along with a huge debt. That debt isn't a problem right now but it could be in the future if their demographics become a serious risk to bond traders. China also has a huge demographics problem, and they're currently having to decide between growth and serious inflation; not to mention the inevitable slowdown that will occur after they've gone through a first wave of industrialization. India has a much better future, and I think they will overtake China eventually. I also agree that we should abandon Pakistan in favor of India, but it has to be done skillfully. The Obama administration has been doing a series of overtures to imply that this is what will happen, so I'm not too worried. Europe has demographic problems of its own, not to mention all of this EU-Zone nonsense that could doom the currency.

 

Krugman has already started talking about it:

 

Did the euro just enter its death throes?

 

OK, I know that sounds over the top, and I hope it is. But recent developments are really, really bad.

 

The best guide to recent events is actually a paper written this spring, by Paul De Grauwe (pdf). I have to admit that when I first read De Grauwes paper I didnt grasp the full force of his argument about liquidity crises; but he now looks absolutely prescient.

 

The key point, which Ive finally taken fully on board, is that in addition to the huge problems of adjustment created by a rigid exchange rate in the aftermath of a bubble, the fact that European nations no longer have their own currencies leaves them vulnerable to self-fulfilling debt crises in effect bank runs on governments rather than banks (although those too).

 

To head off this risk, somebody the EFSF, the ECB, whatever has to be ready to act as lender of last resort; Eurobonds would have served much the same purpose.

 

By resigning from the ECB, Juergen Stark has conveyed, deliberately or not, the message that there will be no such lender of last resort, that there isnt enough political cohesion in the eurozone to stand behind countries under market attack. And this translates directly into soaring spreads for Spain and Italy; the self-fulfilling crisis is on.

 

You little know, my friends, with how little wisdom the world is governed.

Starkness Falls

 

So with all of this calamity, and seeing as the US has favorable demographics -- and despite the need for immigration reform, we're still more open than Japan or Germany -- I think we'll be ok for a while.

 

In the future I think many economies are going to need to figure out ways for "stable economies" where they don't rely on growth for prosperity.

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The '08 economic crisis was caused by banks being too happy to lend, not by them stopping.

Banks were given a carrot and a stick. The carrot was the fact that they could make loans to people and then offload them for a profit to the federal government - Fannie and Freddie. They weren't acting as banks, they were acting as clearing houses (I believe Fannie & Freddie own like 90% of all mortgages)The stick was that if they refused to make loans to people with low income or bad credit, they were threatened with lawsuits and penalties.

99 dungeoneering achieved, thanks to everyone that celebrated with me!

 

♪♪ Don't interrupt me as I struggle to complete this thought
Have some respect for someone more forgetful than yourself ♪♪

♪♪ And I'm not done
And I won't be till my head falls off ♪♪

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The '08 economic crisis was caused by banks being too happy to lend, not by them stopping.

Banks were given a carrot and a stick. The carrot was the fact that they could make loans to people and then offload them for a profit to the federal government - Fannie and Freddie. They weren't acting as banks, they were acting as clearing houses (I believe Fannie & Freddie own like 90% of all mortgages)The stick was that if they refused to make loans to people with low income or bad credit, they were threatened with lawsuits and penalties.

 

See Dean Baker, who predicted a housing bubble before anyone. Another simple response to the "FannieFreddie caused it!!!" is that there is no Freddie/Fannie in Europe. So why did they have the same problems (and how did Canada's banks avoid those same problems). In any case, see Baker's response below:

 

Night is day," "slavery is freedom," okay David Brooks edited those lines out of his column on Fannie Mae today, but this is pretty much how the rest of it reads. He tells us that the economic crisis was the result of Fannie Mae pushing bad mortgages and buying off everyone who tried to stand in their way.

 

There's a small problem in this story. The worst junk mortgages that inflated the housing bubble to extraordinary levels were not bought and securitized by Fannie and Freddie, they were securitized by Citigroup, Merrill Lynch, Goldman Sachs, Lehman and the other private investment banks. These investment banks gobbled up the worst subprime and Alt-A garbage that sleaze operations like Ameriquest and Countrywide pushed on homebuyers.

 

The trillions of dollars that the geniuses at the private investment banks funneled into the housing market were the force that inflated the bubble to its 2006 peaks. Fannie and Freddie were followers in this story, jumping into the subprime and Alt-A market in 2005 to try to maintain market share. They were not the leaders.

 

Just to be clear, Fannie and Freddie were serious bad actors. They are both huge companies that do nothing else but deal with housing. It is incredible that they did not recognize the housing bubble and take steps to try to deflate it, and protect themselves, before it grew to such dangerous levels.

 

Suppose that Fannie and Freddie started demanding appraisals of rental values and refused to buy any mortgage where the ratio of sale price to annual rent was higher than 20. This action by itself likely would have shaken some sense into the housing market. I said this back in 2002, when I first warned of the housing bubble and predicted the collapse of Fannie and Freddie. I also frequently criticized Fannie and Freddie in public forums, including debates with their chief economists. Unlike Brooks, I wasn't worried about non-issues as economic disaster loomed on the horizon.

 

As much as Fannie and Freddie deserve blame for incompetence and corruption, no serious person can make them the main culprits in this story. The Wall Street crew made hundreds of billions on pushing fraudulent mortgages. Furthermore, if we had competent economists running the Fed, they would have been shooting at the housing bubble as early as 2002 also. This does not mean raising interest rates in an economy that was struggling to recover from the collapse of the stock bubble. (I'll say that again, since people have a hard time understanding "do not raise interest rates." The Fed should not have raised interest rates.)

 

If Greenspan had paid attention to the economy he would have had the Fed's staff devoted full-time to documenting the evidence for the housing bubble and he would have used every public appearance (e.g. congressional testimonies, public speeches, international forums) to warn of the risks posed by the housing bubble. He also would have used the Fed's full regulatory authority to police the mortgage issuing practices of the banks under its supervision. He also would have prodded other regulators to use increased scrutiny for the institutions under their control. (Greenspan was never shy about making suggestions to others.)

 

My guess is that these actions would have by themselves crashed the bubble and done so long before it grew to such dangerous levels. They would be essentially costless, so it is difficult to see why a vigilant Fed chair would not have followed this route.

 

It is difficult to believe that these actions would not have been sufficient to deflate the bubble. After all, the David Brooks of the world can ignore Dean Baker warning of the housing bubble, they cannot ignore the Fed chair issuing such warnings, backed up by endless Fed papers documenting the case.

 

It is incredible, that even after the collapse of the housing bubble has wrecked the economy and wiped out the life's savings of tens of millions of middle class and moderate income families (this loss of wealth is why people are not spending, it has little to do with "pessimism"), there is still so little effort to re-examine the fixation on homeownership in this country.

 

Why on earth is President Obama looking to push a renewed Fannie and Freddie type system? Does the public really need to subsidize mortgage interest rates through a government guarantee system, in addition to the mortgage interest deduction?

 

Brooks might devote some of his fire to these loonie schemes. He might also shoot at the whiners who think no one will issue a mortgage if they have to maintain a 5 percent stake in it. And, he might also call for some criminal investigations of the banks that pushed and securitized fraudulent mortgages. But none of this seems to fit Brooks' agenda.

 

Addendum:

 

I had occasion to quote from this 2006 Moody's assessment of Freddie Mac. It does a great job of putting Fannie and Freddie's subprime dealings in context:

 

Freddie Mac has long played a central role (shared with Fannie Mae) in the secondary mortgage market. In recent years, both housing GSEs have been losing share within the overall market due to the shifting nature of consumer preferences towards adjustable-rate loans and other hybrid products. For the first half of 2006, Fannie Mae and Freddie Mac captured about 44 percent of total origination volume -- up from a 41 percent share in 2005, but down from a 59 percent share in 2003. Moody’s would be concerned if Freddie Mac’s market share (i.e., mortgage portfolio plus securities as a percentage of conforming and non-conforming origination), which ranged between 18 and 23 percent between 1999 and the first half of 2006, declined below 15 percent. To buttress its market share, Freddie Mac has increased its purchases of private label securities. Moody’s notes that these purchases contribute to profitability, affordable housing goals, and market share in the short-term, but offer minimal benefit from a franchise building perspective. (p 6)

 

http://www.cepr.net/index.php/blogs/beat-the-press/david-brooks-discovers-that-it-was-all-fannie-maes-fault

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