Re: Maybe the House Republicans did us a favor?

Harry Thompson wrote:
The current tagline is "House to Wall Street: Drop Dead."

I'm finding myself leaning towards Islander's view, that maybe the House did the right thing. Putting leeches on a sick patient maybe doesn't cure fever. That was the theory that illness is an imbalance of the four humors, which doctors tried to correct by removing the patient's blood.

Islander, maybe you could take a look at Brad deLong's blog on the current crisis. See
http://delong.typepad.com/sdj/2008/09/today-in-financ.html

It's long, and deLong is a partisan Democrat (IIRC he was an economic adviser under Clinton). But his occasion here is not partisan politics but an article by Krugman with whom he disagrees on details. I think you can do better than me with the graphs and math.

I noted deLong's view that it is an excess of capital with no real productive place to employ it that led to CDO speculation. A long time ago Marx disagreed with the common opinion that greedy speculation is the cause of financial crisis. Rather, it is overproduction (for Marx) or too much capital today that causes speculation.

This agrees with a point in David Carr's column yesterday that the sub-prime mortgage mess was the ill-conceived response by investment houses to meet the demands of folks with too much cash for "investments" with seemingly good returns. See "Daring to Say Loans Made No Sense" at
http://www.nytimes.com/2008/09/29/business/media/29carr.html?_r=1&scp=6&sq=david%20carr&st=cse&oref=slogin
or tinyurl http://tinyurl.com/4fsopp

He uses $1,000 bottles of Crystal to illustrate. I would use the current art price bubble. There is a repulsive oil portrait by Lucien Freud (maybe it was Francis Bacon) that sold for an unbelievable sum of money. People with far too much money and nothing to use it on want investments with good returns to pay bubble prices for art they don't understand but which advisors tell them to buy.

In the dot com crash there was an amusing article in the New Yorker, "Where Happened to My Money?" by David Owen, New Yorker, May 15, 2000. It's copyrighted and not available online so interested readers will have to look it up. But here is the start:

<<<
God has taken your money to live with Him in Heaven. Heaven
is a special, wonderful place, where wars and diseases and
stock markets do not exist, only happiness. You have probably
seen some wonderful places in your life--perhaps during a
vacation, or on television, or in a movie--but Heaven is a
million billion times more wonderful than even Disney World.
Jesus and Mary and the angels live in Heaven, and so do your
grandparents and your old pets and Abraham Lincoln. Your
money will be safe and happy in Heaven forever and ever, and
God will always take care of it.

Your money is still your money--it will always be your money--
but it cannot come back to you, not ever. That may seem unfair
to you. One day you were buying puts and shorting straddles,
and the next day you woke up to find that your account had
been closed forever. Perhaps you got a sick or empty feeling
in your stomach when that happened; perhaps you have that sick
or empty feeling still. You loved your money very, very much,
and you did not want God to take it away.

etc.

So, if deLong and Carr and some others are right, it is good, not bad, that this excess capital be lost. Sort of like the Doukhobors periodically burning their earthly possessions in order to be nearer to God.



Unfortunately no time today to give this the attention it deserves. One graph that is missing is the trend in household income compared to housing prices. Housing costs had been increasing much more rapidly than household income and that trend could not continue. The many sub-prime mortgage schemes capitalized on this trend in an effort to extend it. It didn't work. Ultimately, people need to have a place to live and if they cannot afford it the market ultimately has to collapse. The sub-prime mortgages simply made the collapse worse.

Love the Owen piece!
.

Relevant Pages

  • Maybe the House Republicans did us a favor?
    ... The current tagline is "House to Wall Street: ... the demands of folks with too much cash for "investments" with seemingly ... was Francis Bacon) that sold for an unbelievable sum of money. ... God has taken your money to live with Him in Heaven. ...
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  • Can You Connect The Dots
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  • Can You Connect The Dots
    ... His secret: The money was yours. ... Murtha, an 11-term western Pennsylvania Democratic congressman, ... passed by the powerful House subcommittee he chairs. ... Generous senior House and Senate Appropriations Committee members ...
    (alt.politics.bush)
  • Can You Connect The Dots
    ... His secret: The money was yours. ... Murtha, an 11-term western Pennsylvania Democratic congressman, ... passed by the powerful House subcommittee he chairs. ... Generous senior House and Senate Appropriations Committee members ...
    (soc.culture.usa)
  • Can You Connect The Dots
    ... His secret: The money was yours. ... Murtha, an 11-term western Pennsylvania Democratic congressman, ... passed by the powerful House subcommittee he chairs. ... Generous senior House and Senate Appropriations Committee members ...
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