"The government has already taken over the financial system," Roubini says, noting U.S. policymakers have committed $9 trillion to rescue the financial system and already spent $2 trillion. "So let's stop the delusion about 'no nationalization.'" Economist Nouriel Roubini explains why full nationalization (as opposed to partial) is the free-market friendly way forward. Includes video interview with Roubini as well as important links. Roubini, who has publicly advocated for temporary nationalization of insolvent banks, says fully nationalizing Citigroup and/or Bank of America would have a minimal effect on the Dow, which is a price-weighted average. More importantly, he believes full nationalizations (vs. the current partial, piecemeal effort) would be better for the market and the economy because it's the first step in the process of cleaning up "bad" banks so they can later be sold back to private investors, i.e. "re-privatized", as was the case last year with IndyMac.

Excellent review of Japan's "Lost Decade" and the current Obama socialist folly of creating similar "Zombie Banks". Baker sites the evidence of ".... a mountain of toxic assets, housing market declines, a sharp economic recession, rising unemployment and increasing taxpayer exposure through guarantees, loans, and infusion of capital - strongly suggests that some American banks face a solvency problem and not merely a liquidity one...." He recommends the Nouriel Roubini plan, a harsh course of action but one that would get the job done. "......This approach is not pretty or easy. It will cost a lot of money, with the lion's share coming from US taxpayers, at least in the short to medium term. But the alternative - a piecemeal pumping of more public money into insolvent banks in the vague hope that things will improve down the road - could truly be historic folly. Eventually our banks and economy will start to recover. When they do, we would be wise to avoid another Japanese mistake - raising taxes. To counter mounting debt created by government stimulus packages, Japan increased taxes in 1997. Consumption dropped and the country's economy collapsed. Our ad hoc approach to the banking crisis has helped financial institutions conceal losses, favoured shareholders over taxpayers, and protected senior bank managers from the consequences of their mistakes. Worst of all, it has crippled our credit system just at a time when the US and the world need to see it healthy.

".....There's a lot of talk about how the bailouts are creating moral hazard and rewarding bad behavior. But those are pretty abstract ideas, the kind of things people wonder whether or not we can afford to worry about while the economy is tanking. Sure we'll pay a long run price  for screwing up the market's discipline but in the long run we're all dead. So forget "moral hazard" and just look at Warren Buffett's description of what is happening to his home construction business, Clayton Homes. Clayton, which makes pre-fab homes, also has a lending business. Surprisingly, Clayton hasn't been crushed by the markets because it maintained high lending standards and doesn't have a balance sheet overflowing with defaulting loans..." And the solution is? Buffett is/was a successful capitalist. Yet he fully supported a socialist takeover of the government. Obama's campaign rhetoric was that of a hard core socialist declaring war on constitutional capitalism. And there was Buffett, standing at Obama's side, arguing that all capitalist should be supporting the systemic change Obama socialism promised to deliver. And now Buffett's complaining? What is it about socialism that attracted Buffett in the first place? Did he really think the socialists he worked to elect would pour tax payer debt money into the capitalists hands, and let the markets go their merry way? The socialist seeks to control the means of production, limit the rights of property ownership, and redistribute the wealth created by capitalist. Socialism does not have a wealth creation model. Redistribution of wealth and control over the means of production is something Buffett supported with both his money and his personal assurances to constitutional capitalist everywhere. Yet here we are. Exactly where Buffetts advice and pleas intended us to be. And now he's complaining? Buffett didn't like the belief in big government programs, big government spending and crisis interventionism of Bush's compasionat

Rove explains Obama's deceitfully clever use of the "strawman" argument. Excellent discussion of how a dangerous demagogue manages to position his extreme and radical views as "reasonable". Just paint your opponent as evil and uncaring without having to actually describe the who, what, where, when facts. ...."President Barack Obama reveres Abraham Lincoln. But among the glaring differences between the two men is that Lincoln offered careful, rigorous, sustained arguments to advance his aims and, when disagreeing with political opponents, rarely relied on the lazy rhetorical device of "straw men." ...... Mr. Obama, on the other hand, routinely ascribes to others views they don't espouse and says opposition to his policies is grounded in views no one really advocates.

Far from suggesting limits on Congress or federal spending, the new President made clear in his first State of the Union address that he believes in government power as the answer to our current difficulties, and he intends to use it. ...... The political divide is over means, not ends, and on that score Mr. Obama is slowly revealing himself as a President who meant what he said going back to the primaries. He believes in the power of the state to drive prosperity, to reform the financial system and health care, and even to transform the entire energy economy. Mr. Obama said at one point that he didn't believe in government for its own sake, but his policy emphasis showed otherwise. ............. The political divide is over means, not ends, and on that score Mr. Obama is slowly revealing himself as a President who meant what he said going back to the primaries. He believes in the power of the state to drive prosperity, to reform the financial system and health care, and even to transform the entire energy economy. Mr. Obama said at one point that he didn't believe in government for its own sake, but his policy emphasis showed otherwise.

"Mr. Obama came to office without a conspicuous vision other than "bipartisanship" and a belief in the beneficent influence on America and the world of seeing a black man exercising the powers of the presidency. He wields his party's shibboleths like one who sees them mainly as levers for delivering the goods. His ideas about the exercise of politics, in fact, may be accurately reflected in the recent stimulus bill -- in office you supply the wish lists of those who put you there.

His will be a fascinating presidency to watch, not least because of his inexperience, his intellectual agility, and the crisis in which he finds himself. But his presidency will get really interesting in a year or two, or six months -- whenever he finally realizes that everything he thought he wanted to do is irrelevant. He'll then have to adapt an agenda for the world as it is, in which many childish things no longer have a place.

And, by the way, he kids himself if he believes he will be allowed, like FDR, to preside over a depression without being politically blamed for it. The public is different now -- the world is different -- and he will own the "Obama depression" sooner than he thinks.

Good explanation of this 2007 FASB accounting rule that wrecked havoc in September of 2008 when GSA subprime mortgage giants Fannie Mae and Freddie Mac both failed. When the bottom fell out from under the government backed securitized mortgage pools, banks were forced by this accounting rule to radically downgrade their assets. Since banks can only lend against their assets using government controlled ratios, as the asset value was marked to a market decimated by Fannie and Freddie failures and falling housing values, this accounting rule triggered the failure of Lehman Brothers. Because of credit default swaps used to insure these thought to be publicly guaranteed securities, the Lehman failure triggered a massive default at AIG as all Lehman security holders filed insurance claims. What a mess. The authors here propose an end or at the least suspension of mark-to-market accounting rules as an immediate solution. ".... In the 1930s, because mark-to-market accounting existed, we limited the amount of time available to fix problems. At the same time, the U.S. raised taxes, increased spending and economic interference, and became protectionist. This hurt growth. The reason the Great Depression was so bad is that we took away time and growth.

Henry Blodgett picks up Paul Volkers comments on inflation ".....The government would quietly but desperately love to inflate our way out of this mess--destroying the dollar so the real burden of our mountain of debt shrivels to a molehill.  This remedy, of course, would punish everyone who has saved up a nest egg or lives on a fixed-income, but they're likely to be considered an expendable minority...." There is also a link on this page to the Aron Task interview with Peter Schiff, "The stimulous bill will lead to unmitigated disaster." http://www.businessinsider.com/2009/2/peter-schiff-stimulus-bill-will-lead-to-unmitigated-disaster Peter compares Bush to Hoover and Obama to Roosevelt, predicting an unmitigated disaster; a depression with hyperinflation. He argues that the great depression was tempered by the fact that government spending and intervention was limited by the godl standard. Today, the Federal Reserve has no such limitation!

As Congressional moron after Congressional moron goes on the usual Sunday talk show circuit and says we must stop home prices from falling, I wonder whether these people took basic math in high school. Are they capable of looking at a chart and understanding a long-term average? The median value of a U.S. home in 2000 was $119,600. It peaked at $221,900 in 2006. Historically, home prices have risen annually in line with CPI. If they had followed the long-term trend, they would have increased by 17% to $140,000. Instead, they skyrocketed by 86% due to Alan Greenspan's irrational lowering of interest rates to 1%, the criminal pushing of loans by lowlife mortgage brokers, the greed and hubris of investment bankers and the foolishness and stupidity of home buyers. It is now 2009 and the median value should be $150,000 based on historical precedent. The median value at the end of 2008 was $180,100. Therefore, home prices are still 20% overvalued. Long-term averages are created by periods of overvaluation followed by periods of undervaluation. Prices need to fall 20% and could fall 30%. Instead of allowing the housing market to correct to its fair value, President Obama and Barney Frank will attempt to "mitigate" foreclosures. Mr. Frank has big plans for your tax dollars, "We may need more than $50 billion for foreclosure [mitigation]". What this means is that you will be making your monthly mortgage payment and in addition you will be making a $100 payment per month for a deadbeat who bought more house than they could afford, is still watching a 52 inch HDTV, still eating in their perfect kitchens with granite countertops and stainless steel appliances. Barney thinks he can reverse the law of supply and demand by throwing your money at the problem. He will succeed in wasting billions of tax dollars and home prices will still fall 20% to 30%. Unsustainably high home prices can not be sustained. I would normally say that even a 3rd grader could understand this conce

"Here's the big problem with almost all the current rhetoric about the housing crisis: It presumes that the goal should be to get house prices rising again.  The problem with that idea is that, even after a 25% decline, house prices are still way too high. " Even if there is a government mechanism that could stop house prices from plummeting and artificially pump them up again, therefore, it would just postpone the inevitable....." Henry covers the infamous Robert Schiller Housing Graph tracking home prices since 1890 to the present. He also includes an excerpt from James Quinn's acerbic but highly informed article. Mr. Quinn spares nothing in his loathing of congress, Barney Frank and Obama.

This out of control Obama fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now. Good stats comparing the Roosevelt great depression years, the Carter recession years and the Obama recession years.

Excellent discussion of the financial crisis, the role of recessions, banking excesses and insolvency, and the need to quietly ride it out and let the recession do what is necessary - clean out the excess. good stuff! Thanx marbux

The stage was thus set for the popular President to forge a bipartisan consensus that combined ideas from both parties. A major cut in the corporate tax favored by Republicans could have been added to Democratic public works spending for a quick political triumph that might have done at least some economic good. Instead, Mr. Obama chose to let House Democrats write the bill, and they did what comes naturally: They cleaned out their intellectual cupboards and wrote a bill that is 90% social policy, and 10% economic policy. (See here for a case study.) It is designed to support incomes with transfer payments, rather than grow incomes through job creation. This is the reason the bill has run into political trouble, despite a new President with 65% job approval. The 11 Democrats who opposed it in the House didn't do so because they want to hand Mr. Obama a defeat. The same is true of the Senate moderates of both parties working to trim their $900 billion version. They've acted because they can't justify a vote for so much spending for so little economic effect.

How Government actions setup and then triggered the financial collapse of 2008

List of Michael Lewis articles that appeared in "The Big Money".

this financial crisis has solidified Michael Lewis' position as America's money laureate. And it's not just because he happened-as some critics would construe it-to be in the right place at the right time. Nor is it because he's sold a ton of books-1.2 million copies since 2001, to be precise. It's because Michael Lewis is by far the best business journalist in the country. His assessment of the country's economic situation-and thus the country's economic mood-has provided some of the finest, most accessible prose available. Lewis serves as translator for the confused, financially illiterate masses. Which makes his secret to success all the more intriguing: His writing isn't actually about money.

But the clearest endorsement of terror as a legitimate instrument of political bargaining came from former President Jimmy Carter. In his book "Palestine: Peace Not Apartheid," Mr. Carter appeals to the sponsors of suicide bombing. "It is imperative that the general Arab community and all significant Palestinian groups make it clear that they will end the suicide bombings and other acts of terrorism when international laws and the ultimate goals of the Road-map for Peace are accepted by Israel." Acts of terror, according to Mr. Carter, are no longer taboo, but effective tools for terrorists to address perceived injustices. Mr. Carter's logic has become the dominant paradigm in rationalizing terror. When asked what Israel should do to stop Hamas's rockets aimed at innocent civilians, the Syrian first lady, Asma Al-Assad, did not hesitate for a moment in her response: "They should end the occupation." In other words, terror must earn a dividend before it is stopped.

The generation of Americans who had faced down fascism and communism understood, Mr. Obama further explained on Inauguration Day, that power alone could not protect us. They understood that our security came not just from missiles and tanks but from "sturdy alliances" and "enduring convictions" -- it emanated from "the tempering quality of humility and restraint." It's impossible to know what kind of history Mr. Obama has been reading but this much at least is true -- the generation he describes knew the importance of sturdy alliances all right. There was that one, for instance, between the American leader, Franklin Roosevelt, and the British, Winston Churchill. Both of them, along with their countrymen, were driven by one enduring conviction -- that fascism should be eradicated from the face of the earth and a total war of destruction waged on Imperial Japan and Nazi Germany until their surrender. It would be hard to find, in their pursuit of that purpose, any hint of that tempering quality of humility and restraint. Not that it isn't entertaining to imagine Roosevelt extending the hand of friendship and conciliation to Hirohito, or Churchill proposing to raise a glass and talk things over with Hitler.

If you only read one critique of the stimulus plan today, check out the Journal's editorial, which concludes that of the $825 billion that's being spent, only 12%, or $90 billion, could legitimately be considered stimulative. In their opinion, which is presented quite well, the rest is just more spending on inefficient programs that have already seen plenty of money thrown at them.

As a conservative economist, I might be expected to oppose a stimulus plan. In fact, on this page in October, I declared my support for a stimulus. But the fiscal package now before Congress needs to be thoroughly revised. In its current form, it does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that's what it takes to produce a much better bill. We cannot afford an $800 billion mistake. Start with the tax side.