I agree with you that we ARE turning into a socialist country. By the way, It is interesting to hear somebody from California saying that.

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Originally posted by Atlantic:

I agree with you that we ARE turning into a socialist country. By the way, It is interesting to hear somebody from California saying that.

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Thanks! I tell people if you want to see the extreme damage sleazy politicians and a totally uneducated/uninformed electorate can do come to California!! We were in a fiscal crisis BEFORE the economic downturn and that was w/plenty of cash pouring in! Leave it to far left Dems to mess up a good thing!

[ 02-19-2009: Message edited by: lasuvidaboy ]

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Originally posted by Atlantic:
It is very ironic how people thought the war was going to be over with the new government. The other day I heard he is sending even more troops to Afghanistan, and plans to stay in Iraq for AT LEAST 26 months!

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Originally posted by jff1:
The problem is the pendulum is swinging too far .... nationalizing banks and providing subsidies in area that will likely never be reversed is setting a course that will change free markets forever.

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Rigid ideology wether right or left never works.

Doctor Doom
Laissez-Faire Capitalism Has Failed

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Nouriel Roubini 02.19.09, 12:01 AM ET It is now clear that this is the worst financial crisis since the Great Depression and the worst economic crisis in the last 60 years. While we are already in a severe and protracted U-shaped recession (the deluded hope of a short and shallow V-shaped contraction has evaporated), there is now a rising risk that this crisis will turn into an uglier, multiyear, L-shaped, Japanese-style stag-deflation (a deadly combination of stagnation, recession and deflation).

The latest data on third-quarter 2008 gross domestic product growth (at an annual rate) around the world are even worse than the first estimate for the U.S. (-3.8%). The figures were -6.0% for the euro zone, -8% for Germany, -12% for Japan, -16% for Singapore and -20% for Korea. The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production, employment, exports and imports is accelerating rather than decelerating.

To avoid this L-shaped near-depression, a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper cleanup of the financial system and reduction of the debt burden of insolvent private agents (households and nonfinancial companies) is necessary in the U.S. and other economies.

Unfortunately, the euro zone is well behind the U.S. in its policy efforts for several reasons. The first is that the European Central Bank is behind the curve in cutting policy rates and creating nontraditional facilities to deal with the liquidity and credit crunch. The second is that the fiscal stimulus is too modest, because those who can afford it (Germany) are lukewarm about it, and those who need it the most (Spain, Portugal, Greece, Italy) can least afford it, as they already have large budget deficits. The last reason is that there is a lack of cross-border burden sharing of the fiscal costs of bailing out financial institutions.

With its aggressive monetary easing and large fiscal stimulus putting it ahead, the U.S. has done more. Except for two elements, both key to avoiding a near-depression, which are still missing: a cleanup of the banking system that may require a proper triage between solvent and insolvent banks and the nationalization of many banks, even some of the largest ones; and a more aggressive, across-the-board reduction of the unsustainable debt burden of millions of insolvent households (i.e., a principal reduction of the face value of the mortgages, not just mortgage payments relief).

Moreover, in many countries, the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system.

Traditionally, only emerging markets suffered--and still suffer--from such a problem. But now such sovereign risk, as measured by the sovereign spread, is also rising in many European economies whose banks may be larger than the ability of the sovereign to rescue them: Iceland, Greece, Spain, Italy, Belgium, Switzerland and, some suggest, even the U.K.

The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign. Among these liabilities are banks, other financial institutions and, soon possibly, households and some important nonfinancial corporate companies.

At some point a sovereign bank may crack, in which case the ability of governments to credibly commit to act as a backstop for the financial system, including deposit guarantees, could come unglued.

Thus the L-shaped, near-depression scenario is still quite possible (I assign it a 30% probability), unless appropriate and aggressive policy action is undertaken by the U.S. and other economies.

This severe economic and financial crisis is now also leading to a severe backlash against financial globalization, free trade and the free-market economic model.

To paraphrase Churchill, capitalist market economies open to trade and financial flows may be the worst economic regime--apart from the alternatives. However, while this crisis does not imply the end of market-economy capitalism, it has shown the failure of a particular model of capitalism. Namely, the laissez-faire, unregulated (or aggressively deregulated), Wild West model of free market capitalism with lack of prudential regulation, supervision of financial markets and proper provision of public goods by governments.

There is the failure of ideas--such as the "efficient market hypothesis," which deluded its believers about the absence of market failures such as asset bubbles; the "rational expectations" paradigm that clashes with the insights of behavioral economics and finance; and the "self-regulation of markets and institutions" that clashes with the classical agency problems in corporate governance--that are themselves exacerbated in financial companies by the greater degree of asymmetric information. For example, how can a chief executive or a board monitor the risk taking of thousands of separate profit and loss accounts? Then there are the distortions of compensation paid to bankers and traders.

This crisis also shows the failure of ideas such as the one that securitization will reduce systemic risk rather than actually increase it. That risk can be properly priced when the opacity and lack of transparency of financial firms and new instruments leads to unpriceable uncertainty rather than priceable risk.

It is clear that the Anglo-Saxon model of supervision and regulation of the financial system has failed. It relied on several factors: self-regulation that, in effect, meant no regulation; market discipline that does not exist when there is euphoria and irrational exuberance; and internal risk-management models that fail because, as a former chief executive of Citigroup put it, when the music is playing, you've got to stand up and dance.

Furthermore, the self-regulation approach created rating agencies that had massive conflicts of interest and a supervisory system dependent on principles rather than rules. In effect, this light-touch regulation became regulation of the softest touch.

Thus, all the pillars of the 2004 Basel II banking accord have already failed even before being implemented. Since the pendulum had swung too much in the direction of self-regulation and the principles-based approach, we now need more binding rules on liquidity, capital, leverage, transparency, compensation and so on.

But the design of the new system should be robust enough to counter three types of problems with rules. A tendency toward "regulatory arbitrage" should be kept in mind, as bankers can find creative ways to bypass rules faster than regulators can improve them. Then there is "jurisdictional arbitrage," as financial activity may move to more lax jurisdictions. And, finally, "regulatory capture," as regulators and supervisors are often captured--via revolving doors and other mechanisms--by the financial industry. So the new rules will have to be incentive-compatible, i.e., robust enough to overcome these regulatory failures.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for www.Forbes.com.

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By John Blake
CNN

(CNN) -- The stock market crashed. Wall Street panicked. People stashed silver and gold under mattresses while businesses shut doors across America.

People in Detroit, Michigan, line up for food at the Capuchin Soup Kitchen.

We're talking, of course, about the Great Depression ... of 1873.

That's the event that Scott Reynolds Nelson cites when asked to give an historical perspective on today's sputtering economy. The historian says the economic panic of 1873 started with the same toxic mix as today's crisis: risky mortgages, a stock market dive and the use of complex financial instruments that few understood.

"Until 1929, when people used the word[s] Great Depression they referred to 1873," says Nelson, a professor of history at the College of William and Mary in Williamsburg, Virginia.

"That was a worldwide international depression that started with the banks. That's what we're seeing now. This looks like 1873."

The nation's economic crisis is not only causing people to look more closely at their 401(k) account statements. They're also turning to their history books. Politicians and commentators routinely invoke the Great Depression and other historical events to describe today's economic crisis. Watch the debate over 'Depression' talk »

But how fair is that historical analogy?

Why Great Depression comparisons may be unfair

James Kolari, an economist at Texas A&M University, says the nation experienced two "rough" recessions in the mid-1970s and the early 1980s. A recession is generally defined as a decline in the Gross Domestic Product for two or more consecutive quarters.

He says it's not fair to compare the current economic crisis to the Great Depression, because the federal government was far more passive in the 1920s.

"We let 15,000 out of 30,000 banks fail," he says. "Government efforts to jump-start the economy were slow and relatively weak until President [Franklin] Roosevelt came along with the New Deal."

Kolari says people can learn more by looking at Japan. He says the U.S. economy is facing the same crisis as Japan in the 1990s when the Japanese economy collapsed from a real estate bubble and never fully recovered.

"The Japanese government moved too slowly and not aggressively enough," he says. "The problems festered."

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David George, a professor of economics at La Salle University in Philadelphia, Pennsylvania, says the federal government better protects ordinary people from financial ruin today than during the first stages of the Great Depression. Today we reap the benefits of policies created during that era, George says.

Roosevelt helped create New Deal legislation to insure bank deposits and enacted other modern relief efforts like unemployment compensation to help those in distress.

"By any measure, incomes were lower then than now, and the worst imaginable loss of output today would still keep the nation well above where we were back then," George says.

Marjorye Heeney is not an economist, but she definitely knows something about the Great Depression. Heeney, 83, grew up on an Oklahoma farm during the Great Depression and lived through the 1930s Dust Bowl storms. For much of that decade, "black blizzards" -- formed by a prolonged drought and poor farming techniques -- ravaged the southern Plains.

Heeney, who now lives in Topeka, Kansas, snorted when told that today's conditions remind some of the Great Depression. During the Depression, crops failed, and few had a job, car or clothes, she says.

"Everyone had one nail for themselves in the clothes closet," Henney says.

Henney says the Great Depression toughened people up. People grew and canned their own food, sewed their own clothes and learned how to make possessions last.

"No one really came from wealth, and nothing was easy," she says. "But people got by because they had a wonderful spirit of survival. We're not as gutsy. I don't know if we have that today."

Why this economic period is still frightening

Victor Matheson, an economist at the College of the Holy Cross in Worcester, Massachusetts, says the nation's most recent recession was the dot-com bust, which hit around March of 2001.

"This recession has already eclipsed the dot-com bust in every fashion," he says. "During that time, the GDP did not fall much, and unemployment did not rise much."

Matheson offers one bit of good news, though. He says today's unemployment rate is not as bad as in previous eras. The unemployment rate reached 10.8 percent during the early 1980s and 25 percent during the Great Depression, he says.

Yet Matheson says there is an ominous feature to the current situation: The Federal Reserve has already lowered interest rates as far as they can go, to around zero percent, but the recession marches on.

The current recession is so "scary" that Matheson says he has reversed his attitude on Obama's $787 billion stimulus plan. He once opposed it but now supports it because he can't think of anything that might work better. He says the economy will not bounce back on its own anytime soon

"You gotta go with what you got," he says. "The Federal Reserve has loosed all of its cannons, and it has nothing left. Now we're down to fiscal policy."

Nelson, the historian who has studied the panic of 1873, says today's economy might even be worse than the American economy in 1873.

"This is a perfect storm: banks failing, stock markets declining and commodity prices dropping," Nelson says.

Nelson says it took America four years to recover from the 1873 panic. Tens of thousands of workers -- many Civil War veterans -- became homeless. Thousands lined up for food and shelter in major cities. The Gilded Age, where wealth was concentrated in the hands of a few "robber barons like John D. Rockefeller," followed the panic.

America, of course, pulled out of the panic. Nelson is just not quite sure how the nation is going to do it now. His ultimate assessment of today's economy is blunt: