patrick.net

>>Not to split hairs, but the best example of the free market was when slavery was legal?

ROFLMAO.

justme,

I do not have the ability to follow your arguement or reasoning as presented. You took the position that American migration away from UK was to "escape the yoke of free market capitolism." I have read in many text and am pretty sure (now, due to double checking what I learned in 8th grade) that what I shared with you is correct, America was set up and designed by men against forced tax-based welfare. Please go back to your last challenge posted to me and then re-read my response. If that does not shed some light on my point, please help me to understand where you are trying to take this series of posts. As of now, you questioned the existence of welfare in 1700 UK and I shared with you the facts that prove welfare, and the political curroption it breeds, was in place and FAILED (some say liberal ideas like welfare always fail). In order to move into the next area that you are taking this discussion, we need to settle that point. Do you conceed that welfare (forced wealth transfers between citizens by gov) was introduced to UK circ 1700 and was a failure? Thank you.

Bap33,

>>America was set up and designed by men against forced tax-based welfare.

I have never until this week seen anyone make this claim. And certainly I have never seen a serious historian do so. This interpretation of the American Revolution is completely without merit, i dare say.

That being said, many of the typically quoted reasons stated as being the driving forces behind the American Revolution have historically been half-truths at best.

What people *say* was the reason for forming the US: To escape religious persecution, tyranny in their home countries,escape taxation without representation, etc etc etc (the usual reasons).

The *real* reason for forming the US: Basically it was an opportunistic land-grab and a chance for the lower nobility and the working classes to become independent land owners and to form a new social hierarchy with a better starting position for themselves than what they had in their home countries.

Again, I am trying to follow along, but you have left incomplete issues behind us. Unless you are conceeding that I was 100% correct and you were incorrect in your presentation of there being no welfare issue in 1700 UK. Was I correct?

"To escape religious persecution..."

The ruling class always performs a systematic mulcting of a country's producers if they are allowed to do so. They then spin intellectual philosophies and ideal to justify the means by which they rule, to increase their powers, as well as to justify the rule itself. In the old world the rulers partially used the religious leaders to justify their existence. The religious institutions, just like any inflated government program, became incredibly suppressive and corrupt. Thus they were not fleeing religious persecution as much as they were fleeing the natural persecution of natural bloated government suppression. The religious leaders of the enlightenment period, have been replaced by "intellectuals" and Keynesian economists, that the ruling class now uses to support their systematic mulcting of the productive masses. The government/economic system required for all these liberal social programs to work, is the same system that allows for ongoing war resulting in 15 million deaths at the hands of US armies in the last 75 years. They go hand in hand. A pure free market system would limit both greatly.

"...tyranny in their home countries, escape taxation without representation."

Kinda, but you missed something here. Of course they were escaping tyranny. This is exactly what Bap is saying when he brings up the welfare programs. The part of his valid logic that you are missing is due to your deeply entrenched liberal thought process. I can't blame you for repeating what you hear I suppose. The ruling class will always justify their tyranny through social programs. They use these justifications to tax everyone, and further entrench themselves into power. This is exactly what Bap was presenting and is very valid. It is an ancient method of control that goes back to ancient Egypt (probably farther back) as described in the story of Joseph in the bible.

Thus another way to put what Bap is saying is that they were escaping unfair taxation, which is the necessary first step of any welfare program. However, taxation without representation was our colonies' leaderships' way of justifying the American revolution. That happened here, but you do have the right idea.

Justme, everyone wants the same thing: freedom to live our lives to the fullest extent of happiness and fulfillment that we can for ourselves, families, and fellow Americans. We simply have an opposite philosophy of how to get there. I buy into the philosophy of Milton Friedman. If I may paraphrase to save myself the time: Greed is simply self interest. No one looks at themselves as greedy. It is always someone else that is greedy. Furthermore, there is no economic or political system that can overcome the natural human desire to satisfy your own self interest. China, Russia, socialist countries, anarchist countries...they all run on self interest. Socialism requires a small group of people to make enormous judgment calls on behalf of all of us. Whereas a free market allows us the freedom to make these choices ourselves. There are no angels out there to which can be trusted the job of being the socialist planners, without somehow allowing his/her own self interest to get in the way. The paternal state always works very well for those being paternalistic, and always works to the detriment of those having their decisions chosen for them. A free-market system has thus proven itself to be the best possible method we have come up with as a society to gain happiness for the lower and middle classes.

By choosing free market capitalism over socialism or fascist capitalism, I am simply choosing to allow individuals to choose their economic self interest rather than allowing some demagogue to choose for all of us based on his political self interest. Therein lies the only difference.

Bap33,

I would not say you were correct. Some minimum substinence for *some* farm laborers in a limited area (Berkshire) in 1795 hardly constitutes a welfare system by any stretch of the imagination. And I very much doubt any Berkshire landowners fled to America for that specific reason. Come on.

CBOE,

The problem you are missing (among all the many facts you are missing) is that there is no truly free market capitalism and never has been ANYWHERE. Free market capitalism is just as impossible as communism. Once you can understand that, we may have something to talk about. I'm done.

OK, this revisionism is getting irritating.

First, let me make it clear that I recognize all of the virtues of free market capitalism, I am an entrepreneur myself.

That being said, it is generally my POV that free markets and commercialization work just fine when there is a commercial opportunity. I believe in free movement of prices and I don't believe government should compete with the free market. (Health care is not a free market for many reasons, but I'm elaborating on another point so not covering health care right now.) I do believe the free market needs to be regulated for health and safey, and environmental reasons. I also believe in zoning and city planning.

History also shows that free markets thrive on the heals of government investment, unfortuanately especially wars. I have very little support for entitlements (consistently stated), protected classes, but of course I do support public aid to the mentally insane, addicts, disaster victims etc.

Guys, the farm programs you're talking about are seen as experiments in socialism/communism which are generally considered miserable failures. Those experiments continued in the early colonies and failed as well. That being said, it is a gross distortion to say anyone on this thread has espoused the extreme view of directly taxing a farmer to give to a non profitable farmer. This clearly is scoialism, it is a bad thing, but it is not even challenged, the point was never disputed. Again, I have to take issue with using small examples to make huge gneralizations. Now all of a sudden small failed experiments led to mass migration to the New World? I hardly think so.

Here is my history lesson based on the lessons I learned from my thesis in entrepreneurship.

All the way from the beginning, 1492, the voyage that discovered the New World was government funded. The country was found through a public private partnership.

FFWD to the Revolutionary war, which was fought not because of the minimal amount of taxes, but on the representation issue. Ironically the argument is distored because in reality England was providing governement services mainly in defense and had the gall to send a bill.

As stated, all the way to 1865 shouldn't be considered a legitimate free market given that it was built on the backs of slaves. Not disputing anything, just saying you can't make a free market claim when you have slavery and factories full of one-armed and maimed childre

The expansion of the economy and real free markets come with the technologies developed in the Civil War.

The first post war significant catalyst for the free market is 1869 with the completion of the Transcontinental Railroad. Even then the United States was still a relatively small world player. (The evil socialist Great Britain was the main player all the way to WWI)

The United States became a player with the Great White Fleet in the early 1900s.

WWI of course led to huge government expenditures and more technologies. This led to great expansions and increases in standards of living during the 20s. Then of course, the Depression happened many blame on lack of regulation and certainly depositors would have been happy to have an FDIC. People become Christians in fox holes, they also become liberal when they hit tough times.

The New Deal and WWII are credited with ending the depression. Depending on which revisionist you believe more, the degree of each is disputed, but there is general consensus that the government expenditures are what got things moving again.

Like the 1800s, in the 1950s the freeway system created all kinds of new opportunities for rapid mass transportation especially with huge commercial implications.

The 1960s changed our society to where prior years seem prehistoric. The space program, a result of the cold war, kept the US as the leader in innovation all the way through to the 90s when China of all places realized privatizing sectors of their economy would lead to huge jumps in productivity.

Sorry, that is the condensed version. I've left out a lot of examples purely for brevity.

justme says

CBOE,
The problem you are missing (among all the many facts you are missing) is that there is no truly free market capitalism and never has been ANYWHERE. Free market capitalism is just as impossible as communism. Once you can understand that, we may have something to talk about. I’m done.

I completely agree with you, and have implied as much if I haven't ouright stated it. So what exactly do you have to add? Or are you throwing in the towel?...not that I would blame you.

well .. the justme / nomograph "one-two-punch" is how I shall be attacked personally I see.... no suprize. Welp, I trust Patrick to observe your behavior and act accordingly if needed.

Your wild guess is wrong. And the information stands.

I find your attack to be both personal and impolite. I think you simply get your feelings hurt when you see truth in print. I'm gonna take a wild guess that you heard AM talk radio was a bad thing from some pink-o lib anti-American.

justme says

Bap33,
I would not say you were correct. Some minimum substinence for *some* farm laborers in a limited area (Berkshire) in 1795 hardly constitutes a welfare system by any stretch of the imagination. And I very much doubt any Berkshire landowners fled to America for that specific reason. Come on.

justme,

If you feel the forced removal of wealth in the form of taxation of an individual, and then the delivery of that wealth to another tax-paying individual, done so by the ruler, and done so with threat of penalty,,,,, all of this done in an openly stated effort to transfer wealth from one tax-payer to another tax-payer in an amount seen fit by the ruler,,,, if you feel this is NOT a "welfare system" .... then please explain what you do call it? And then, please explain what a "welfare system" is in your eyes, making obvious to an observer what the differences are between the two. That will help us move through this communication better. Thank you.

ps The fact that the system I shared did fail should not be forgotten as we move along.

Nomograph says

Bap33 says

I have read in many text and am pretty sure (now, due to double checking what I learned in 8th grade) that what I shared with you is correct, America was set up and designed by men against forced tax-based welfare.

I think you simply discovered that an eighth-grade level of knowledge about American history is insufficient. I’m gonna take a wild guess that you heard that the American Revolution was about welfare on AM talk radio.

With all your PHD's, I would expect you to come up with a more creative criticism than the AM talk radio thing. You have used that how many times now? Obviously, you are simply repeating exactly what you hear from whatever your liberal version of the AM talk radio nuts jobs, whatever that may be.

Bap has a self depreciating way of communicating. It's a form of casual humor, not to be taken seriously. I suppose somewhere in between all that grad school you missed the normal socialization lessons that the rest of us idiots have learned in life. Do yourself a favor and take this as constructive criticism, rather than as an attack. Genuinely smart people don't need to constantly tell everyone how much smarter they are than everyone else.

Malcolm,

I appreciate your thoughtful response. You seem quite educated. That being said I disagree with you on multiple points.

1)"History also shows..." The very word history or HIS STORY is a term inferring a subjective observation. The German language uses the same word for story (die Geschichte) as it does for history. Logically, it makes sense. There are as many versions of the story of history as there were people to observe and record the events. Thus what you are actually saying is the version of history that YOU buy into shows... In general I choose to buy into a different interpretation of history.

Specifically...

2)"WWI of course led to huge government expenditures and more technologies. This led to great expansions and increases in standards of living during the 20s." This is ruling class propaganda designed to get the average citizen to agree to destructive warfare. Building machines of war and then destroying stuff, though it may add to the GDP, does not help anyone accept the stockholders of the companies building those machines, those servicing the massive resulting debt, and to a very small degree the employees of those companies. When you factor in the waste of capital inputs and the resulting debt, wars are always a net detractor of societal wealth. We would get about as much economic impact if we produced 10 million cars, only to dump all of them into the ocean. Interestingly enough, many of the modern Keynesian programs sound about as productive as this.

3)"Then of course, the Depression happened many blame on lack of regulation and certainly depositors would have been happy to have an FDIC." The Federal reserve should not have been controlling our money supply in the first place. It was improper regulation, rather than not enough regulation that resulted in the great depression.

4)"The New Deal and WWII are credited with ending the depression." Conversely, the New Deal is also blamed for prolonging the depression. I have read many books on both versions, and I feel the New Deal was a fabulous disaster. I realize this is not the version of history that our Keynes worshipping government "intellectuals" choose to allow our history classes to tell us. I could recommend a few books for you if you want to see exactly where and why I have developed my opinion here.

5)"As stated, all the way to 1865 shouldn’t be considered a legitimate free market given that it was built on the backs of slaves." This is an excellent point. However, I still can not find a better free market capitalistic example in history than the US in the 1800's, which was obviously far from a perfectly free market. I have already stated that slavery ONLY worked for the slave owners, not for the general population of the US. We would have been collectively far better off economically to allow the slaves the freedom to pursue productive activities on their own terms (a MORE free market)--not to mention the obvious moral issues.

Malcolm.

Agree with you on the revisionism. It seems pretty extreme that the US was founded in 1776 by oppressed 1795 Berkshire landowners trying to escape the tyranny of paying minimum wage to some poor sod farm workers. Not only do we have revisionism, but we also have time-travellng!

Hmm, maybe that is the secret of our relative success. Time travel!

CBOEtrader, I too appreciate that you are learned and have obviously put a lot of research and experience into the formation of your position. I thank you for your courteousness.

Agreed on the history points, but please understand that even if everyone is on the same page historically, that history is still as dynamic as it was when it was current. It is not like a math problem, it can generate two true different answers like you say depending on the perspective of the reference.

You'll note that I do say unfortunately when I refer to wartime innovations. In your comment though you do say something I have always agreed with, which is like the free market, it is actually quite difficult for government to waste money because it doesn't actually go anywhere. Like you say, you could spend all that money on assets and throw them in the ocean and the economic activity still happened. But yes, I'd rather see the government investing in fantastic infrastructure projects than waging wars, because of the undisputable fact that the resulting commercialization leads to greater social benefits.

I also think it is important to distinguish between redistribution and collective investment. There are some nasty exchanges here where it is unclear to me what the disagreement is. I don't believe redistribution works, or is moral, but I support the use of government to foster commerce through social policy; be it infrastructure, technology transfers, and other partnerships. I'm not a 'rob Peter to pay Paul' liberal, but like in a home owner association, I don't mind pooling a small amount of my income to get a much larger benefit. The individual cost of a community swimming pool for example is a lot less than building and maintaining your own pool.

The pure free market ideology fails in a couple of ways for me. For one, those who say it is superior have a point when it comes to commercialism. However, in my research I identify areas where the free market doesn't come into play because high socially beneficial activities don't generate any sort of income stream, or if they do they are simply too large.

I also can't just let the 1800s golden age point slip by. That golden age compared to any modern measure was a miserable time because specifically there was no government involvement. Factories were death traps. The population was constantly being addicted to Heroin because there was no government requiring labeling, or even studying ingredients in patent medicines. There was no public sanitation so disease spread, and without health and human services there was no epidemic management other than quarantine after symptoms. Businesses polluted as they saw fit causing even more misery.

Yes, I am also fond of the Victorian/Progressive periods from the late 1800s to the early 1900s. Social values were higher to where people did have a respect for nature, and yes, it was a great time for novel low capital costing inventions. There is a timing variable to my point of view, where I respect the culture nurturing garage innovations in the late 1800s and modern times where individual inventors simply can't fund fundamental research needed to further advance humanity. A specific example to illustrate this point is that in 1903 some bicycle shop owners could build a primitive airplane. Who will build a space plane now? Will it be a small business owner, or will it involve public resources in one form or another?

Nomograph says

CBOEtrader says

Bap has a self depreciating way of communicating.

It’s ’self deprecating’.

LOL, ok, I suppose I would've pointed that out too under the same circumstances, so can't really blame you there.

Malcolm,

I agree with...well...everything you have to say here. The point of government is to accomplish something together that we can't do as well individually. I am not on those no government libertarians. There are some very legit purposes to which the government should focus our collective resources.

Justme,

Save yourself the trouble of reinventing other's words and go find yourself a strawman to punch.

elvis says

“The course of history shows that as government grows liberty decreases.” Thomas Jefferson.

This quote was probably after he raped a slave and before he used public funds to triple the size of the country.

I'm definitely not bitter, I just point out the hypocrisy of a slave owner talking about liberty. Also, it is pretty well documented and accepted. Her name was Sally Hemmings. I said probably in the sense that I don't know the year of the quote or the rapes. Nothing was inferred.

The reason it relates is because on one hand you have someone with the ideology you and a couple of others were presenting, that government only exists for defense, using the power of government for another purpose. It is also inconsistent that Mr. State's rights/antifederalist bought the Louisisana Territory. Like I've said before, this purest rhetoric like religion doesn't even hold true to the people who espouse it. Do as I say, not as I do.

And no, I'm not knocking his political theory. Clearly he had an incredible mind, just some conflicted values.

Malcom,

It may not have seemed like it at the time but in retrospect the Louisiana purchase was not only a bargain but also served to provide for the national defense. Much cheaper and more peaceful in the long run.

Well, once again, this country was founded with the concept of LIMITED GOVERNMANT. And yes, we need national defense, and fire fighters, and police and teachers, etc. BUT gov't has mutated into a wasteful, corrupt, parasitic blob thats sucking the life out of the economy and the country itself. The HOST (taxpayers) is being killed by the PARASITE (GOV'T).

Too much gov't, too many laws, too little freedom leads to tyranny from the political class perpetrated upon all others. Abe

Agreed.

2ndClassCitizen says

Malcom,
It may not have seemed like it at the time but in retrospect the Louisiana purchase was not only a bargain but also served to provide for the national defense. Much cheaper and more peaceful in the long run.

I wasn't making a point against the Louisiana Purchase. I just pointed out that the same person Elvis was quoting as the base of his ideology of a government with weak powers used government power for something significantly different than defense. That same government then went on to iradicate the indigenos people of that territory.

I am 1/4 oglala lakota, what the white man calls the sioux, though you'd never know by looking at me. It is interesting how quickly we judge other societies in their attrocities like Tienem Square, or Chechnyan genocide, or even the Holocaust when it was only 120 years ago that we were completing probably the most successful genocide campaign known to modern man.

I am on the side of Elvis!

Socialism, as defined as an effort to bring people together to solve community problems sounds good on the surface. The problem is when the governing is "centralized" in far away places. Centralization of government always, (I repeat) always ends badley for those of the governed who abandon personal responsibility and initiative, in the name of having someone else "do it" or be responsible. Yes, Fire Departments, Police Departments, etc. are good for the public, but, not when run from Washington D.C.
When the responsibility for educating our children, providing our housing, providing our health care, etc. is transferred to far away authorities then incredible distortions of consumption, distortions of production, and incredible (in fact, unsustainable) waste is the result. We, as Americans, are first hand witnesses to what I have just summarized. We are on a quick train track to insolvency, which, when it finally interrupts what we consider as normalcy, will be the most disruptive social experience of my lifetime. Every time something goes wrong, "the market" gets blamed, without regard to how "the market" has been distorted, preempted, or "managed".
What we really need to do is "take our services back" from Government. The only thing that the Feds really do well is provide for our defense, and regulate what is truly "interstate commerce" (roadbuilding, Securities, etc.). Most of the rest, including our retirement programs, do not belong in Washington, where they are doomed to fail. And yes, while Social Security and Medicare have provided much good, they are ultimitely unsustainable as national programs. They will run out of money, and be proven, through the looking glass of history, to have been fatal mistakes for the Republic. The more responsibility for all social functions that can be housed at home, by the individual, family, community, and State (as in individual States), the better off we will be as individuals, community, States, etc.
It is not easy carrying most of our responsibility, at home, but it really is the best way to sustain a person, family, community, state, nation, etc.

There are multiple factors but I blame Alan Greenspans attempts to cease the DOT COM bubble burst of the late 90's. My thoughts are that the root culprit is Graham-Leachy act which removed all stop gaps for creative financing in attempt to extend loans out to lower income middle class families. Alan Greenspan apparently put forth all of this in attempt to thwart the DOT com bust of the late 90's.... it backfired and now we are the benefactors of his failed fiscal policies.

"Go Republican policy, down with regulation, let businesses run the way they want....then put the Dems in office to sell the taxpayers on paying for the failed policies."

Here are the facts behind the causes of the recession and housing bubble.

Subprime lending as a cause
Further information: Subprime mortgage crisis
Based on the assumption that subprime lending precipitated the crisis, some have argued that the Clinton Administration may be partially to blame, while others have pointed to the passage of the Gramm-Leach-Bliley Act by the 106th Congress, and over-leveraging by banks and investors eager to achieve high returns on capital.

Some believe the roots of the crisis can be traced directly to subprime lending by Fannie Mae and Freddie Mac, which are government sponsored entities. The New York Times published an article that reported the Clinton Administration pushed for subprime lending: "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people" (NYT, 30 September 1999).

In 1995, the administration also tinkered with Carter's Community Reinvestment Act of 1977 by regulating and strengthening the anti-redlining procedures. It is felt by many that this was done to help boost a stagnated home ownership figure that had hovered around 65% for many years. The result was a push by the administration for greater investment, by financial institutions, into riskier loans. In a 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 it was shown that $467 billion of mortgage credit poured out of CRA-covered lenders into low- and mid-level income borrowers and neighborhoods. (See "The Community Reinvestment Act After Financial Modernization," April 2000.)

[edit] Government activities as a cause
In 1992, the 102nd Congress under the George H. W. Bush administration weakened regulation of Fannie Mae and Freddie Mac with the goal of making available more money for the issuance of home loans. The Washington Post wrote: "Congress also wanted to free up money for Fannie Mae and Freddie Mac to buy mortgage loans and specified that the pair would be required to keep a much smaller share of their funds on hand than other financial institutions. Whereas banks that held $100 could spend $90 buying mortgage loans, Fannie Mae and Freddie Mac could spend $97.50 buying loans. Finally, Congress ordered that the companies be required to keep more capital as a cushion against losses if they invested in riskier securities. But the rule was never set during the Clinton administration, which came to office that winter, and was only put in place nine years later."[43]

Others have pointed to deregulation efforts as contributing to the collapse. In 1999, the 106th Congress passed the Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act of 1933. This repeal has been criticized by some for having contributed to the proliferation of the complex and opaque financial instruments which are at the heart of the crisis. However, some economists object to singling out the repeal of Glass-Steagall for criticism. Brad DeLong, a former advisor to President Clinton and economist at the University of California, Berkeley and Tyler Cowen of George Mason University have both argued that the Gramm-Leach-Bliley Act softened the impact of the crisis by allowing for mergers and acquisitions of collapsing banks as the crisis unfolded in late 2008.[44]

[edit] Over-leveraging, credit default swaps and collateralized debt obligations as causes
Another probable cause of the crisis—and a factor that unquestionably amplified its magnitude—was widespread miscalculation by banks and investors of the level of risk inherent in the unregulated Collateralized debt obligation and Credit Default Swap markets. Under this theory, banks and investors systematized the risk by taking advantage of low interest rates to borrow tremendous sums of money that they could only pay back if the housing market continued to increase in value.

According to an article published in Wired, the risk was further systematized by the use of David X. Li's Gaussian copula model function to rapidly price Collateralized debt obligations based on the price of related Credit Default Swaps.[45] Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies.[45] According to one wired.com article: "Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril...Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees."[45]

The pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. It has been estimated that the "from late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds...[o]ut of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi."[46] The average recovery rate for high quality CDOs has been approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO's has been approximately five cents for every dollar. These massive, practically unthinkable, losses have dramatically impacted the balance sheets of banks across the globe, leaving them with very little capital to continue operations.[46]

[edit] Credit creation as a cause
The Austrian School of Economics proposes that the crisis is an excellent example of the Austrian Business Cycle Theory, in which credit created through the policies of central banking gives rise to an artificial boom, which is inevitably followed by a bust. This perspective argues that the monetary policy of central banks creates excessive quantities of cheap credit by setting interest rates below where they would be set by a free market. This easy availability of credit inspires a bundle of malinvestments, particularly on long term projects such as housing and capital assets, and also spurs a consumption boom as incentives to save are diminished. Thus an unsustainable boom arises, characterized by malinvestments and overconsumption.

But the created credit is not backed by any real savings nor is in response to any change in the real economy, hence, there are physically not enough resources to finance either the malinvestments or the consumption rate indefinitely. The bust occurs when investors collectively realize their mistake. This happens usually some time after interest rates rise again. The liquidation of the malinvestments and the consequent reduction in consumption throw the economy into a recession, whose severity mirrors the scale of the boom's excesses.

The Austrian School argues that the conditions previous to the crisis of the late 2000s correspond exactly to the scenario described above. The central bank of the United States, led by Federal Reserve Chairman Alan Greenspan, kept interest rates very low for a long period of time to blunt the recession of the early 2000s. The resulting malinvestment and overconsumption of investors and consumers prompted the development of a housing bubble that ultimately burst, precipitating the financial crisis. This crisis, together with sudden and necessary deleveraging and cutbacks by consumers, businesses and banks, led to the recession. Austrian Economists argue further that while they probably affected the nature and severity of the crisis, factors such as a lack of regulation, the Community Reinvestment Act, and entities such as Fannie Mae and Freddie Mac are insufficient by themselves to explain it.[47]

Austrian economists[who?] argue that the history of the yield curve from 2000 through 2007 illustrates the role that credit creation by the Federal Reserve may have played in the on-set of the financial crisis in 2007 and 2008. The yield curve (also known as the term structure of interest rates) is the shape formed by a graph showing US Treasury Bill or Bond interest rates on the vertical axis and time to maturity on the horizontal axis. When short-term interest rates are lower than long-term interest rates the yield curve is said to be “positively sloped”. When short-term interest rates are higher than long-term interest rates the yield curve is said to be “inverted”. When long term and short term interest rates are equal the yield curve is said to be “flat”. The yield curve is believed by some to be a strong predictor of recession (when inverted) and inflation (when positively sloped). However, the yield curve is believed to act on the real economy with a lag of 1 to 3 years.

A positively sloped yield curve allows Primary Dealers (such as large investment banks) in the Federal Reserve system to fund themselves with cheap short term money while lending out at higher long-term rates. This strategy is profitable so long as the yield curve remains positively sloped. However, it creates a liquidity risk if the yield curve were to become inverted and banks would have to refund themselves at expensive short term rates while losing money on longer term loans.

The narrowing of the yield curve from 2004 and the inversion of the yield curve during 2007 resulted (with the expected 1 to 3 year delay) in a bursting of the housing bubble and a wild gyration of commodities prices as moneys flowed out of assets like housing or stocks and sought safe haven in commodities. The price of oil rose to over $140 dollars per barrel in 2008 before plunging as the financial crisis began to take hold in late 2008.

Other observers have doubted the role that the yield curve plays in controlling the business cycle. In a May 24, 2006 story CNN Money reported: “…in recent comments, Fed Chairman Ben Bernanke repeated the view expressed by his predecessor Alan Greenspan that an inverted yield curve is no longer a good indicator of a recession ahead.”[citation needed]

[edit] Oil prices
Economist James D. Hamilton has argued that the increase in oil prices in the period of 2007 through 2009 was a significant cause of the recession. He evaluated several different approaches to estimating the impact of oil price shocks on the economy, including some methods that had previously shown a decline in the relationship between oil price shocks and the overall economy. All of these methods "support a common conclusion; had there been no increase in oil prices between 2007:Q3 and 2008:Q2, the US economy would not have been in a recession over the period 2007:Q4 through 2008:Q3."[48] Hamilton's own model, a time-series econometric forecast based on data up to 2003, showed that the decline in GDP could have been successfully predicted to almost its full extent given knowledge of the price of oil. The results imply that oil prices were entirely responsible for the recession; however, Hamilton himself acknowledged that this was probably not the case but maintained that it showed that oil price increases made a significant contribution to the downturn in economic growth.[49]

I would also say the real estate agents are at fault also. They have been consistently using the multiple offer method to raise the listing price of the homes i have been looking at here recently...each and everytime I refuse to submit a counter offer.

We will wait until next years SALES prices come out before we buy a house...LOL

I have had a tuff time getting the "sales" amount .... any good on-line short cuts?

Congratulations, everyone.
Wait for the forth quarter results. They are going to be even better.
What's even nicer - the total dollar amount of defaulted mortgages, which increases much faster than the number of cases.
Also the increase in the number of bankruptcies is very promising, it indicates that a lot of home-debtors were lured into preferring bankruptcy over foreclosure, that's temporary for sure. When this trend reverses we'll see a powerful implosion in housing markets and PRICES!

Wowza.. 76% change in foreclosures since q3 08 in Oregon. 176% in AL!

Yeah, some of the theories floating around a Portland Housing blog I visit is that the fact that Portland has had a lot of participation in the Alt-A department and since those folks have deeper pockets via 401K's, IRA's, relatives, other investments that these guys might be dipping into those 'saving' to save the house but at some point it's going to make more sense to walk away from the house before everything else is drained.

Yeah, this party is just getting started, IMHO.

What would they rent for?

OK, I lived for 6 years in the 92612 zip and was there recently.

We actually were going to rent a place in that neighborhood (Alcorn) and they are old, redone for the most part, but older 1970's construction. That neighborhood, along with Rainbow Ridge TH were the first to be built in Turtle Rock which gives you an idea of how old they are.

In 2003 we were paying $1850/mo for a 3/2 with attached 2-car in Turtlerock Meadows TH across from TR Park. This same unit/area is currently renting for $2100-2700/mo, depending.

For your home listed above, my educated guess is that you're looking at $2500-$3k/mo rent. Reason being, its proximity to UHS and UCI.

~Misstrial

I would love to invest in something, putting it in the market is riskier than gambling these days.

Anyone cacth front line last week? "The Warning" it about Brooksley Born the head of the CFTC warning that the derivatives market was a scam. She was silenced in a Congressional hearing on her findings, and six weeks latter the derivatives market collapsed. All of the folks that maliciously silenced her and told her and congress point blank that suckers are suckers and deserved to be robbed, if they can't see something is too good to be true and invest in those sucker bets. They saw it a great money maker and economy builder, robbing from hard working people investing in complicated markets they don't understand.

I guess that is why Greenspan sabotaged the Tech market it interfered with the financial market, which they had full control over. The tech market was a force out of their control, just the companies and the day traders investing in them. Banks had to watch billions being made and lost for the sidelines. (Unrelated I know, but I always wondered what was Greenspans motive for bringing down the tech industry as a whole, instead of just policing the scammers that over valued bogus companies. )

My point is there is no way I would invest in this market unless you a great understanding of the Fundamentally Challenged forces that are driving this market. It is not supply nor demand, nor is it fiscal profits.

I would invest in a private venture though, that has a good model and a plan.

My husband calls this his "we're gonna buy for cash" dance. In fact he does a little dance.
We don't have as much disposable income as you, (evidently) so it would be more like 2018 for us.

GMAC my mortgage holder (

Sorry all, I had a great one. The post (above) didn't go through. I don't have the heart to type it again. Have a Good One,