Economics 101

Based on what economists and laymen, alike, have learned by the ENRON scam with the implementation of "mark-to-market" accounting, why would the federal government, 7 years after ENRON's collapse issue FAS 157 which became effective November 15, 2007? Do you believe this to be the ultimate cause for our current state of despair, in conjunction with the repealling of the Glass-Steagall act in 1999? The fact that most banks were nudged or forced through their desires to stay competitive with other banks who jumped aboard the "mark to market" band-wagon and the lack of government "moral" regulations seems like too big of a coincidence? So what purpose could be served for bundling up our bad debt (derivitives) and selling it to foreign investors? Not only this but foreign governments encouraging their populations to buy up our bad debt, such as China? In addition, the federal reserve has recently lowered the fed rate to .25 percent, but many are unaware what this process entails? Could you please explain this process that the newspapers fail to mention on a daily basis. Since the rate can go not much lower are these "stimulus packages" a scheme concocted by the Federal Reserve since they can no longer "legally" buy up securities which in turn puts more dollars into circulation? My final question, what happens when no other country in the world will buy our government bonds to fund these stimulus packages? Don't think it can't happen, just look at California and it's inability to sell bonds.

We're not at home to Mr Cock-up.

Couldn't the unprecedented amounts of money being thrown at the financial industry by reluctant "main street" be an attempt by the federal government and banking industry to hide "losses" incurred through the speculation that "mark to market" accounting creates in contrast to what their actual profits were? Could this explain the mammoth quarterly losses being recorded by banks and the banks' reluctance to be forthright in where the loaned taxpayer money is being spent? Hmm.. maybe like buying up other banks with equally horrific losses so that to make it so convoluted for any investigative reporters, if any still exist, to "follow the money" trail??

the difference between what a CEO made in 1990 and what a CEO makes today? Can it simply be explained by inflation and how much of this contributed to the wall street failures?

Here is the million dollar question...

"Is deflation even real?" 

Of course it is real.  It is the opposite of inflation, what goes up must come down, but the "experts" apply deflation to "price" instead of the amount of currency in circulation.  This is in large part due to the constant flux our currency the dollar is in.  The unatainable amount of gold necessary to keep pace with the Federal Reserve printing cash, forced our government to toss away the anchor to our ship long ago...

Don't believe the talking heads, look at how they mocked Peter Schiff (you tube: peter schiff was right), an economist who warned of the housing bubble bursting several years ago.

Look up the price of gold the past hundred years to get a gauge of inflation...(couldn't find it on any U.S. government websites but found it on an English one:  http://66.38.218.33/scripts/hist_charts/yearly_graphs.plx

I have one tax suggestion to help get us out of our 12 trillion dollar national debt (and growing...see $825Billion Dollar "Stimulus Package"):

A flat tax for all electronic equipment and accessories immediately (ipods, t.v.s, video games and systems, computers, car stereos,  call it a "luxury tax" straight out of Monopoly!  My reasoning,  if you have 50 bucks to buy a video game or ipod or plasma t.v. then you could spare a dollar or so per purchase.  You wouldn't notice it that much and it might encourage people to get outdoors a little more in the process.    

No, I do not think the current financial debacle has been orchestrated in the sense that a person or group planned all of the events that took place in order to create a crisis. I do think that the current crisis is the result of a “perfect storm” of events and circumstances. Each event or action would not have created much damage on its own. Instead, the crisis is the result of the cumulative impact of a number of things that have created quite a mess.

There are some who point to the Federal Reserve as the main culprit. The Federal Reserve kept interest rates very low after the 2001 recession. This is a standard policy move to help the economy recover from a recession and increase the chances of economic growth. Taken by itself, this action was very reasonable. One unintended consequence was lower mortgage rates, which helped increase the demand and prices for homes.

There were government policies that did encourage homeownership. One that many are familiar with is the tax deduction people get for mortgage interest payments. The government also encouraged banks and other lenders to extend credit to low income households that would not normally have been eligible for a mortgage. This was not a new policy goal of the government though, so it is hard to conclude that this was the sole cause of the crisis.

The financial industry did create some interesting financial instruments that made it possible for people to get sub-prime loans. Zero down payment loans, adjustable rate mortgages and other creative (and complex) instruments were introduced to people who did not meet traditional home loan qualifying criteria. As long as home values went up, these would probably have been safe. Eventually the higher home price would create equity for the buyer and the buyer would be able to refinance or sell at a gain. When prices started to fall, many people were in a situation that caused them to lose the homes.

The way in which home loans were made changed. Traditionally, banks that knew the local housing market and even the person borrowing the money were replaced with loan originators, investment banks and other financial institutions. Often the buyer did not have to stay in the home very long in order for the loan originator to earn a commission. This new system led to some short term decision making that were beneficial to individuals, but were harmful to the system.

Other people packaged loans into financial instruments called mortgage backed securities. These securities were bundles of many mortgages. Ratings agencies and many others concluded that these securities were safe. Even if some of the mortgages went bad, there were certainly enough good ones to still earn a good return. At least that is what people thought.

There were many who abused the system for their own gain, but there were many who invested in mortgage backed securities because they offered a nice return and seemed to be safe because they were backed by property. Unfortunately, a number of financial instruments were created that were not backed by the home, but were backed by a security or were insurance on the securities. There is not room in this blog to describe all of the complicated financial instruments that were created.

This is where those who say that unfettered free market capitalism or laissaz-faire regulation come into play. Many of these new instruments were very lightly regulated and not very well understood. They tied financial institutions together in ways that were not very transparent. When the housing bubble burst, the value of assets tumbled and financial institutions did not know who could be trusted and the credit markets froze up. Once this happened, many businesses were not able to get the loans they needed to continue to operate and the crisis in the housing market that spread to the financial market began to affect many markets.

The problem with saying that it is unfettered greed or capitalism is that many of the people investing were not doing so to earn a fast dollar. Pension funds, municipalities, and others who invested in mortgage backed securities were simply trying to make a smart investment that could provide financial security. There were literally trillions of dollars world wide looking for sound investments with a nice return.

While this may be a long entry for a blog, it does not explain all the details of what happened. Many of the explanations of the crisis that you will read or hear focus on one part of the process. They may do this because it is so complicated or they may have a particular agenda. If we really want to fix the system though, it makes more sense to try to understand all the factors that led to the crisis and not just focus on a one or two.

I also realize that the original post had a number of other specific questions. Over the next day or two I expect that my colleagues will address some of those.

Kelvin Jasek-Rysdahl
Professor of Economics
California State University, Stanislaus

The Budgetary Implications of Drug Prohibition

UN Crime Chief Says Drug Money Used to Bail Out Banks

Prohibition and the Crash

Editorial: Prohibition Contributed to 1929 Stock Crash - Repeal Helped Economy

there is a feeling I have that the criteria used to promote homeownership bordered on fraud in a very practical sense; i.e. people who earn their living as appraisers were encouraged to inflate the value of a home, people were encouraged to own homes they could not possibly afford (I am lower middle class and KNEW I could not afford a 600k house, for instance) etc. While some of this may be chalked up to human greed and ignorance, my question is who profited the most from this debacle? While it may not be a matter of some group sitting somewhere and planning all this, I know that there is more to the present situation than simple bubble-bursting - or am I being middle-class paranoid?

One of the ways to encourage someone like me to have faith in government bail outs and the ability of our economy to recover would be to see people prosecuted for taking the idea of promoting home ownership to extremes. Of course, I don't know what they would be prosecuted for but this entire thing seems to make something like the SEC ridiculous.

If you're trying to provide basic safety services (within a finite budget) like police, should you give the officers a 10% salary increase and then lay some off because of budget constraints?

Or do you maintain the current pay and keep as many Officers on the street as possible?

Perhaps but what if those police officers who were laid off weren't laid off because of their performance or the budget (see increased salary of 10%)...maybe it's their ideological or theological perspectives that are being laid off??

This couldn't be the case, not in America, right?  See:  Alberto Gonzalez (former Attorney General of the United States and the firing of many federal attorney's for undisclosed reasons).

I do not think bubble creation and bursting are simple. I think it is very complicated.

Many people profited from the incredible expansion of the housing market. Construction companies and employees, appliance and furniture manufacturers and sellers, landscape contractors, and many others benefited from the housing boom. Many of these people are now hurting. When housing prices went up, those who invested in the mortgage backed securities were earning nice returns.

I do not think that anyone who looks at went on during the boom would try to suggest that fraud did not occur though. But fraud was not sole cause of the boom and the crisis that followed. Certainly fraud was a factor in fueling the boom, but the boom itself created opportunities for people to take advantage of. People with questionable ethics were drawn into the housing sector when they saw the incredible increase in home values.

It will be very important that those who committed illegal acts be brought to justice, but it can only be one part of the response to this crisis. We do need to examine what kinds of standards should be applied to home lending, and what kinds of rules need to exist in the credit default swap market for example. We also need to think about whether homeownership for everyone in the country is a reasonable national priority. Given the explanation of the crisis that I laid out in my earlier post, I also think we need to take a look at decision making by the Federal Reserve.

We need to figure out how get the credit markets functioning soon and get the bleeding to stop. Once the crisis is over we can really examine all that went wrong. The problem with blaming the crisis on one or two factors is that the short and long term responses will be inadequate. We need to understand the most important factors and address them. Unfortunately, much of the examination that needs to take place can only happen after the event is over. We did not understand all the causes of the Great Depression until some time after it was over.

Kelvin Jasek-Rysdahl

The same individuals who were on "deck" watching over our nation and economy as advisers during the Clinton administration (this is not political bashing by the way, just stating facts)are now at the helm of rescuing us from many of the laws implemented and repealled with their support. The Bush administration took further advantage, along with Kenneth Laye and Jeffrey Skillings of the deregulation of the energy markets that Laye had been a lobbyist for during Bush SR.'s presidency. Too many coincidences do not make a "perfect storm", rather a symphony if conducted by an astute "think tank" or group of individuals....

Is this why Bush had thought about attempting to set up "future pardons" for several of his cabinet? He was awfully worried about something?? Geithner was the former head of the Federal Reserve Bank of New York, member of the Council on Foreign Relations which is funded by the Rockefeller foundation which was created by Rockefeller himself, who, along with J.P. Morgan created and funded the Federal Reserve back in 1914. (Yeah, no conflict of ideological interests) Summers is even worse, President of Harvard for six years, head of the World Bank for three years, and Secretary of Treasury under Clinton during the Enron and California energy crisis.  Let us not forget their mentor Robert Rubin, who before his position as Secretary of Treasury for Clinton's first and most of the second term, was Director and Senior Counselor to Citigroup,  Ford Motor Group, Harvard Corporation,  U.S. Securities and Exchange Commission, Council on Foreign Relations, Carnegie Corporation Of New York, and on the board of directors at the New York Stock Exchange.  MarketWatch in January 2009 ranked Rubin as one of the "10 most unethical people in business!"  Former Secretary Henry Paulson has a similiar resume...

Atleast we know that the financial sector is being represented in our government, what about the rest of us? I ask, is this "change?"

We, the undersigned, call your attention to the attached report by Professor Jeffrey A. Miron, The Budgetary Implications of Marijuana Prohibition. The report shows that marijuana legalization -- replacing prohibition with a system of taxation and regulation -- would save $7.7 billion per year in state and federal expenditures on prohibition enforcement and produce tax revenues of at least $2.4 billion annually if marijuana were taxed like most consumer goods. If, however, marijuana were taxed similarly to alcohol or tobacco, it might generate as much as $6.2 billion annually.

The fact that marijuana prohibition has these budgetary impacts does not by itself mean prohibition is bad policy. Existing evidence, however, suggests prohibition has minimal benefits and may itself cause substantial harm.

We therefore urge the country to commence an open and honest debate about marijuana prohibition. We believe such a debate will favor a regime in which marijuana is legal but taxed and regulated like other goods. At a minimum, this debate will force advocates of current policy to show that prohibition has benefits sufficient to justify the cost to taxpayers, foregone tax revenues, and numerous ancillary consequences that result from marijuana prohibition.

Endorsing Economists:
*Affiliations listed are only for purposes of identification.
Affiliation
Milton Friedman The Hoover Institution, Stanford University Nobel Laureate
George A. Akerlof University of California, Berkeley Nobel Laureate
Vernon L. Smith George Mason University Nobel Laureate
David Aadland University of Wyoming
Burton A. Abrams University of Delaware
Daron Acemoglu Massachusetts Institute of Technology
Ljubisa Adamovich Florida State University
Earl Adams Alleghany College
Ashraf Afifi Ferris State University
Rita M. Akin Westminster College
William Albanos Jr. PSI Learning Institute
William Albrecht University of Iowa
Donald Alexander Western Michigan University
Michael Alexeev Indiana University
Dan Alger Lawrence University
Joseph Allen University of Georgia
Amer Al-Saji Muskegon Community College
Dave Amos Lorain County Community College
James Anderson Boston College
Joan Anderson University of San Diego
Geoffrey T. Andron Austin Community College
J.J. Arias Georgia College
Bevin Ashenmiller Claremont McKenna College
George Averitt Purdue University, North Central
Robert J. Awkward Middlesex Community College
Howard Baetjer Towson University
Richard Baillie Michigan State University
Jennifer A. Ball Washburn University
Christopher Ball Quinnipiac University
A. Paul Ballantyne University of Colorado, Colorado Springs
Richard J. Ballman Jr. Augustana College
Taradas Bandyopadhyay University of California, Riverside
Edward B. Barbier University of Wyoming
Andrew Barkley Kansas State University
William A. Barnett University of Kansas
Humberto Barreto Wabash College
J. Douglas Barrett University of North Alabama
Kaushik Basu Cornell University
James Bathgate Linfield College
Tammy Batson Northern Illinois University
Yoram Bauman Whitman College
Ergin Bayrak University of Southern California
Scott Beaulier Mercer University
Fred Beebe Long Beach City College
Arthur Benavie University of North Carolina, Chapel Hill
Theodore Bergstrom University of California, Santa Barbara
Eli Berman University of California, San Diego
Colleen Berndt George Mason University
Marc Bilodeau Indiana University-Purdue University Indianapolis
Cyrus Bina University of Minnesota
Stanley Black University of North Carolina
McKinley Blackburn University of South Carolina
Calvin Blackwell College of Charleston
Emily Blanchard University of Virginia
Andre Blaszczynski Tunxis Community College
Howard Bodenhorn Lafayette University
Donald J. Boudreaux George Mason University
James Bradfield Hamilton College
James Bradley University of South Carolina
Carole L. Brandle Kent State University, Stark
W. Kenneth Bratton Oakland Community College
Paul Briggs Windward Community College
Isabelle Brocas University of Southern California
Gregory Brock Georgia Southern University
Bruce Brown California State Polytechnic University, Pomona
Carl Brown Florida Southern College
Neil Bruce University of Washington
John Bryant Rice University
Roland Buck Morehead State University
Carl Bonham University of Hawaii, Manoa
John P. Burkett University of Rhode Island
Joyce Burnette Wabash College
Michael Butler Texas Christian University
William N. Butos Trinity College
Bernard Caldwell University of North Carolina, Greensboro
David Campbell Whittier College
Noel Campbell North Georgia College and State University
S. Campo University of North Carolina, Chapel Hill
Arthur J. Caplan Utah State University
Bo Carlsson Case Western Reserve University
Juan Carrillo University of Southern California
Thomas M. Carrol Central Oregon Community College
Michael Casson Delaware State University
William Cauble Western Nebraska
Adam Chacksfield Western Illinois University
Ujjayant Chakravorty Emory University
Jack Chambless Valencia Community College
K Chandrasekar New York Institute of Technology
Chun-Hao Chang Florida International University
Andre Charleston
James Chase Valencia Community College
Walter Chatfield San Bernadino Valley College
Pierre Chiappori Columbia University
Gerald Childs Rutgers, The State University of New Jersey
Kenneth L. Chinn Southeastern Oklahoma State University
Gregory Chow Princeton University
Jens Christiansen Mount Holyoke College
Kenny Christianson Binghamton University
Lawrence R. Cima John Carroll University
Clifford Clark University of Illinois, Urbana-Champaign
Norman Cloutier University of Wisconsin, Parkside
Douglas Coate Rutgers, The State University of New Jersey
Lee Cockerill California State University, Fullerton
Richard Coe New College of Florida
Philip Coelho Ball State University
Boyd D. Collier Tarleton State University
Robert Collinge University of Texas, San Antonio
Darius J. Conger Ithaca College
Laura S. Connolly University of Northern Colorado
Michael B. Connolly University of Miami
John M. Cooper Minnesota State University, Moorhead
Solveg Cooper Cuesta College
Erik Craft University of Richmond
Roger Craine University of California, Berkeley
James Crawford Valley City State University
Ron Cronovich University of Nevada, Las Vegas
John Cuddington Georgetown University
Scott Cunning University of Georgia
Andrew Currie Simon Frasier University
Elizabeth Curtis New England College
Susan Dadres Southern Methodist University
Sami Dakulia University of Alabama
Thomas Dalton Southern University at New Orleans
Richard H. Davidson Daytona Beach Community College
Ronald B. Davies University of Oregon
Spencer Davis North Carolina State University
William L. Davis University of Tennessee, Martin
Susan Davis Buffalo State College
Alan V. Deardorff University of Michigan
Gregory Delemeester Marietta College
Steven Deller University of Wisconsin, Madison
Alex DePinto University of Redlands
Robert J. Derrell Manhattanville College
William Desimini Suffolk County Community College
James Devault Lafayette University
Darlene DeVera Miami University of Ohio
Hashem Dezhbakhsh Emory University
Arthur M. Diamond, Jr. University of Nebraska, Omaha
Angela Dills Clemson University
Caf Dowlah Queensboro Community College
Robin Dubin Case Western Reserve University
Kevin Duncan Colorado State University
Tomas Dvorak Union College
William R. Easterly New York University
Jonathan Eaton New York University
Fritz Efaw University of Tennessee, Chattanooga
Bernard Elbaum University of California, Santa Cruz
Catherine S. Elliott New College of Florida
Howard Ellis Millersville University of Pennsylvania
Richard England University of New Hampshire
Cosmas Etim Central Connecticut State University
Paul Evans Ohio State University
Micky Falkson Cornell University
Joshua Farley University of Vermont
Robert M. Feinberg American University
William Feipel Illinois Central College
David Felix Washington University in St. Louis
J. Peter Ferderer Macalester College
Daniel Fink Cornell University
Mark Finlay Armstrong Atlantic State University
Robert J. Flanagan Stanford University
John Flander Central Methodist University
Jaime Flores Chabot Community College
Fred E. Foldvary Santa Clara University
John Formby University of Alabama
Annette D. Forti State University of New York, Old Westbury
John Fox Kansas State University
April M. Franco University of Iowa
Mark Frascatore Clarkson University
L. Freiberg Northeastern Illinois University
Marcia J Frost Wittenberg University
Mark Frost Southern Methodist University
Drew Fudenberg Harvard University
T. Galloway Southwest Missouri State University
Alka Gandhi Lycoming College
Gay Garesche Glendale Community College
Leonard Gaston Central State University
Jeremiah German Towson University
Malcolm Getz Vanderbilt University
Adam Gifford Jr. California State University, Northridge
Scott Gilbert Southern Illinois University, Carbondale
Lance Girton University of Utah
Michael Goldberg University of New Hampshire
Robert J. Gordon Northwestern University
Robert Gottfried Vanderbilt University
Simon Grant Rice University
Philip E. Graves University of Colorado
Keith Griffin University of California, Riverside
Anthony Gu State University of New York, Geneseo
Eleanor Gubins Rosemont College
Oabe Gunrin Howard University
Steffen Habermalz University of Nebraska, Kearney
Thomas Hall Miami University
Juan Carlos Hallak University of Michigan
Jay Hamilton John Jay College of Criminal Justice
David Hammes University of Hawaii, Hilo
Bruce Hansen University of Wisconsin, Madison
Robin Hanson George Mason University
Stephen Happel Oregon State University
Jon Harford Cleveland State University
Philip Harris University of Wisconsin, Madison
Oliver Hart Harvard University
Seid Hassan Murray State University
Donald M. Hayward Mote Marine Laboratory
S. Aaron Hegde California State University, Bakersfield
Ali Hekm College of Eastern Utah
Ian Hellings Kankakee Community College
Andrew Helms University of Georgia
David Hemenway Harvard University
David Henderson The Hoover Institution, Stanford University
Eugene M. Herman Moraine Valley Community College
Berthold Herrendorf Arizona State University
Rodney Hiser Butler Community College
Arnold Hite Charleston Southern University
Vladimir Hlasny Michigan State University
Paul Hodges University of Texas, Permian Basin
John Hoftyzer Southwest Missouri State University
Stephen Holland University of North Carolina, Greensboro
James M. Holmes State University of New York, Buffalo
Theresa Honeycutt Edison College
Steven Horwitz St. Lawrence University
A. Reza Hoshmand Daniel Webster College
Frank M. Howland Wabash College
Wade Hudson Wagner College Staten Island
Mary Huff Stevenson University of Massachusetts, Boston
Mark Huggett Georgetown University
Barry Ickes Pennsylvania State University
Selo Imrohoroglu University of Southern California
Thomas Ireland University of Missouri, St. Louis
Alan Isaac American University
Nurul Islam University of Massachusetts, Boston
Habib Jam Rowan University
Jay A. Johnson Southeastern Louisiana University
Laurie Johnson University of Denver
Richard Johnston Monmouth College
Elia Kacapyr Ithaca College
David E. Kalist Shippensburg University
M. Kamrany University of Southern California
John Kane State University of New York, Oswego
Edi Karni The Johns Hopkins University
Jonathan Karpoff University of Washington
Sheen T. Kassouf University of California, Irvine
Terry Kastens Kansas State University
Milton Katoglis Emory University
Jim Kelsey Western Washington University
Dick K. Kennedy Odessa College
Lawrence Kenny University of Florida
Peter Kerr Southeast Missouri State University
Neha Khanna Binghamton University
Kyoo H. Kim Bowling Green State University
Roy Kim Drexel University
So Young Kim Florida Atlantic University
Kiho Kim Medgar Emers College
Kent P. Kimbrough Duke University
John Kirk College of San Mateo
Paul A. Kivi Bemidji State University
Daniel Klein Santa Clara University
Daniel Klein George Mason University
David Klingaman University of Georgia
Jeffrey Koch Strong High-Yield
Kenneth Koelln University of North Texas
Stephen Kolub Swarthmore College
William Kordsmeier University of Central Arkansas
James Koscielniak Moraine Valley Community College
Lea-Rachel Kosnik University of Missouri, St. Louis
Lawrence D. Krohn Tufts University
Monika Krol Southern Illinois University
Douglas Krupka Georgia State University
Sisko Kule Valencia Community College
Ronald Kuntze University of Tampa
James Kurre Pennsylvania State University, Erie
Michael Kurth McNeese State University
Michael Kuryla Broome Community College
Ben Kyer Francis Marion University
Kern Kymn West Virginia University
Sumner La Croix University of Hawaii-Manoa
Sajal Lahiri Southern Illinois University
Fabian Lange Yale University
George Langelett South Dakota State University
Richard Langlois University of Connecticut
William D. Lastrapes University of Georgia
William Lay Jr. Bryan College
Stephen Layson University of North Carolina, Greensboro
Gregor Lazarcik Brooklyn College
Quan V. Le Seattle University
Li Way Lee Wayne State University
Gary D. Lemon DePauw University
Fred H. Leonard Smith College
Stephen F. LeRoy University of California, Santa Barbara
David K. Levine University of California, Los Angeles
Robert Levman
Anthony Lewis Jr.
Yang Li University of Mississippi
Carlos Liard-Muriente Western New England College
Byron Lilly De Anza College
Terrance Liska University of Wisconsin, Platteville
George Loewenstein Carnegie Mellon University
Franklin A. López Tulane University and University of New Orleans
Guido Lorenzoni Massachusetts Institute of Technology
Richard Lotspeich Indiana State University
Anton Lowenberg California State University, Northridge
Hari Sharan Luitel West Virginia University
James Luke Lansing Community College
R. Ashley Lymann University of Idaho
John Lynham University of California, Santa Barbara
Roger Mack De Anza College
Craig MacPhee University of Nebraska, Lincoln
Matt Maher Boise State University
Michael T. Maloney Clemson University
Howard Margolis University of Chicago
Mindy Marks University of California, Riverside
Matthew Marlin Duquesne University
Craig Marxsenc University of Nebraska, Kearney
Paul Mason University of North Florida
Harpal Maur Austin Community College
Rachel McCulloch Brandeis University
Laurence McCulloch Ohio State University
Todd McFall Wake Forest University
Niccie McKay University of Florida
Kelly McKay Victoria College
Robert F. McNown University of Colorado, Boulder
Michael McPherson University of North Texas
Jagdish Mehra Youngstown State University
Matthew Mercurio Princeton University
John Merrifield University of Texas, San Antonio
Peter Milch Houston Community College
Dragan Milkovic North Dakota State University
Gary Miller Los Angeles Harbor College
Matthew Mitchell University of Iowa
John Mogab Texas State University
Mark Montgomery Grinnell College
Carlisle Moody The College of William and Mary
James E. Moore II University of Southern California
James Morris University of Colorado, Denver
Catherine Morrison Paul University of California, Davis
Andrew P. Morriss Case Western Reserve University
Leon Moses Northwestern University
Tracy Mott University of Denver
Herv? Moulin Rice University
John Mullen State University of New York, Potsdam
Thomas Murray New Mexico State University, Grants
Richard Muth Emory University
Amy Myers Parkland College
John Nader Grand Valley State University
Emilio Nazario Delaware State University
Donald Nichols Oakland Community College
Inder P. Nijhawan Fayetteville State University
Farhang Niroomand University of Southern Mississippi
William Nook Milwaukee Area Technical College
Hugo R. Nopo Middlebury College
Susan Nowakhtar Chaffey College and Mount San Antonio College
Stephen A. O'Connell Swarthmore College
Frederick Oerther Greensboro College
Brenden O'Flaherty Columbia University
Amon Okpala Fayetteville State University
Jayde Okunubj Medgar Emers College
Bernard O'Rourke Caldwell College
Jim O'Shaughnessy Daytona Beach Community College
Dragana Ostojic George Mason University
Patsy P. University of Pennsylvania
Jan Parker Suffolk County Community College
Elliott Parker University of Nevada, Reno
Christopher Parmeter Binghamton University
Christine Parrott Austin Community College
E. C. Pasour North Carolina State University
Jennifer Patti
Michael Perelman California State University, Chico
Dwight Heald Perkins Harvard University
Mark Perry University of Michigan, Flint
Stanley Peters
Bethany Peters Rhodes College
Nicholas Petricoff University of Cincinnati
Michael Petrowsky Glendale Community College
Christopher Phillips Somerset Community College
Candace Pivit
Ivan Pongracic Hillsdale College
Charles Pregger-Roman Castleton State College
Christopher D. Proulx University of California, Santa Barbara
Sara Provost
Michael Pumputis
Fernando Quijano Dickinson State University
Valerie Ramey University of California, San Diego
John Rapp University of Dayton
Kenneth Rebeck St. Cloud State University
Charles Reichheld Cuyahoga Community College
Joseph Reid George Mason University
David Reiley University of Arizona
Siobhan Reilly Mills College
Stanley Reiter Northwestern University
Ariell Reshef New York University
Charles F Revier Colorado State University
Reed Reynolds University of Toledo
Linda Richten Kansas State University
Mark Ridin
Robert Rigney Valencia Community College
Aric Rindfleisch University of Wisconsin, Madison
Ken Roberts Southwestern University
Nancy Roberts Arizona State University
Gary Robertson Aquinas College
Malcolm Robinson Thomas More College
William Robinson University of California, Santa Barbara
Leila A Rodemann Trident Technical College
Terry Roe University of Minnesota
Robert Rogers Dauch College
Michael Rolleigh Williams College
Rafael Romero State University of New York Institute of Technology
Don Roper University of Colorado, Boulder
Jaime Ros University of Notre Dame
Thomas Rossi Broome Community College
Santanu Roy Southern Methodist University
Dan Rubenson Southern Oregon University
Paul H. Rubin Emory University
Anthony Rufolo Portland State University
John Ruggiero University of Dayton
Mark Rush University of Florida
Gerard Russo University of Hawaii
Andy Rutten Stanford University
Kanchana N. Ruwampura Hobart and William Smith Colleges
William Sackett Itasca Community College
Massood Saffarian Northwestern Oklahoma State University
Diego Salazar University of San Dakota
Michael K. Salemi University of North Carolina, Chapel Hill
Michael Saliba Loyola University New Orleans
Donald Salyards Winoma State University
Subarma Samanta The College of New Jersey
John Sanders Purdue University
Howard Sanderson Virginia Commonwealth University
William H. Sandholm University of Wisconsin
Connie Sanzo Pima Community College
Hyman Sardy Brooklyn College
Rajiv Sarin Texas A&M University
Nathan Savin Iowa State University
Ted Scheinman Mount Hood Community College
Ken Schoolland Hawaii Pacific University
Carlos Seiglie Rutgers, The State University of New Jersey
George Selgin University of Georgia
Rajiv Sethi Barnard College, Columbia University
John Seydel Arkansas State University
Robert Sgazzle Williams College
Mohamad Shaaf University of Central Oklahoma
Howard Shaber Montgomery College
Harry Shaffer University of Kansas
Rami Shafiee North Harris College
Sumitra Shah St. John's University
Nasrin Shahinpoor Butler University
Bill W. Shaw Louisiana College
William Douglas Shaw Texas A&M University
John Shea University of Maryland
Edward Shepard Le Moyne College
James F. Shepard Whitman College
George Sherer University of Dayton
Stephen Shmanske California State University
Hamid Shomali Golden Gate University
Scott Shore Bentley College
Martin Shubik Yale University
Steven Shugan University of Florida
Werner Sichel Western Michigan University
Hammad Siddiqi Northern Illinois University
Randy T. Simmons Utah State University
Thomas R. Simmons Greenfield Community College
Rajesh Singh Iowa State University
R.L. Singson California State University, Hayward
Sarah J. Skinner University of Louisiana, Lafayette
Allan G. Sleeman Western Washington University
Kenneth A. Small University of California, Irvine
Rachael Small University of Colorado, Boulder
Robert S. Smith Cornell University
Halon Smith University of Minnesota
Rodney Smith University of Minnesota
Arthur Snow University of Georgia
Russell S. Sobel West Virginia University
Eric Solberg California State University, Fullerton
Marilyn Spencer Texas A&M University, Corpus Christi
Leora Starr Metropolitan State College of Denver
Mark Staynings Bowling Green Community College
Sally Stearns University of North Carolina, Chapel Hill
Ivan Steinberg New Jersey City University
Jean-Philippe Stijns Northeastern University
Courtenay Stone Ball State University
Scot Stradley Concordia College
Diana Strassmann Rice University
David Sturges Colgate University
Xuejuan Su University of Alabama
Venkat Subramaniam Tulane University
Diane R. Suhler Columbia College
Scott Sumner Bentley College
James Swaney Wright State University
James L. Sweeney Stanford University
Moshe Syrquin University of Miami
Alex Tabarrok George Mason University
David Talbot Plymouth State University
Harry Taute New Mexico State University
Henry M. Taylor Martin University
Wade Thomas State University of New York, Oneonta
Mary Thompson University of Tennessee
Henry Thompson Auburn University
Philip Thompson Central Michigan University
Walter N. Thurman North Carolina State University
Jerry Thursby Emory University
Richard H. Timberlake University of Georgia
Alex Tokarev Southern Illinois University, Carbondale
Mark Toma University of Kentucky
Kudret Topyan Manhattan College
Edward Tower Duke University
Karen K. Tracey Marygrove College
Philip A. Trostel University of Maine
Gordon Tullock George Mason University
Bruce Vanderporten Loyola University Chicago
Minh Vo University of Minnesota
Richard Volpe University of Massachusetts, Amherst
John Volpe Trinity University
Mark Votruba Case Western Reserve University
John R. Wagner Westfield State College
Douglas Wakeman Meredith College
Douglas M. Walker Georgia College
Gary M. Walton University of California, Davis
Kam-Ming Wan University of Texas, Dallas
X.H. Wang University of Missouri
Jennifer Ward-Batts Claremont McKenna College
David Warner University of Texas, Austin
Matt Warning University of Puget Sound
Dale W. Warnke College of Lake County
William Weber Southeast Missouri State University
Jack Wegman Santa Rosa Junior College
Kenneth Weiher University of Texas, San Antonio
Martin Weitzman Harvard University
Stanislaw Wellisz Columbia University
Jeff Welty Wright State University
Walter Wessels North Carolina State University
James Wetzel Virginia Commonwealth University
David Wharton Washington College
Hsin-hui Whited Colorado State University, Pueblo
James Whitney Occident College
Jonathan Wight University of Richmond
Walter Williams George Mason University
Jeffrey G Williamson Harvard University
John Willoughby American University
Beth Wilson Humboldt State University
Wllmer Wilson University of Colorado, Boulder
David M. Wishart Wittenberg University
Theodore Woodruff St. Ambrose University
Colin Wright Claremont McKenna College
Thomas Wyrick Southwest Missouri State University
Pavel Yakovlev West Virginia University
Takashi Yamashita University of Nevada, Las Vegas
Chin W. Yang Clarion University
Andrew Yates University of Richmond
Madelyn V. Young Converse College
Ben Young University of Missouri
Huizhong Zhou Western Michigan University
Stephen Zihiak Roosevelt University
Joseph Zoric Franciscan University of Steubenville

I appreciate your response. Thank you.

"Given all these facts and the total disregard for your customer base ... we the undersigned plan to BOYCOTT your products. And we're serious. Even though the Pop Tarts thing will be HARD"

Twenty or 30 years from now, will it matter to economicsts, historians or taxpayers that some of the strategies were called bailouts and some were stimulus?

I have this feeling that many Americans are just lumping them all together in their minds.

We welcome your thoughts, Professors...

-- Judy Sly

I tend to agree with you when you say that this situation we are now in is a very complicated situation, but I do believe that it can be simplified down to a language that the ordinary person that knows nothing about economics will be able to understand. And that looking at history will help us to not make these same mistakes again, although I though we had done that in the 1930’s.

First of all the tax structure we have had for almost thirty years has created the largest discrepancy in wealth in the history of the United States. In the past thirty years we have seen the greatest redistribution of wealth the world has ever known. We now have about 2% of the population controlling or owning more than 90% of the wealth. This in itself creates an economy that is not sound. Without a strong foundation, without a strong working class, and with a strong manufacturing base, you cannot have a strong, lasting economy. It has also caused us to run the government on deficit spending, which in itself isn’t that bad, if you have the base to support it, which we do not have at this time. We have gone from a national debt of less than a trillion dollars to what we have today, which is about eleven trillion dollars. This devalues the dollars, which causes the prices to rise. This has happened in the last thirty years. We have gone from the largest exported of finished goods to the largest importer of finished goods. We have gone from the largest lender in the world to the largest borrower in the world. And this comes back to the tax policy that is attributed to Reagan, but he just instituted it, that theory has been around for a long time. Presidents Harding, Coolidge and Hoover al had this as a policy, with the same result. It that time those policies brought on the Gilded Age.

Second of all the deregulation of the banks and money institutions helped create this mess. A free market is in theory a good thing, but, and there’s always a but, it must be regulated. Without regulation you get what we have today, a market run amuck. Because there was no regulations and no oversight, these people could do anything they wanted. Merging together to become an institution that’s too big to allow failure. Banks doing loans they were never meant to do, and of course derivatives, which is just an insurance to cover what you are doing. These people were allowed to package bad mortgages with a few good ones and sell them with a “AAA” rating, and then bet on whether on not hey would fail. Then they were allowed to bet on whether or not those bets would fail, and on and on. So regardless of what happened to those mortgages you were going to make money, so there was no real incentive to worry about whether or not the loans were good.

To get out of this mess, which is what should concern us right now, along with seeing the error of the way business was being done, is spending. The government is the only one that has the capability of getting us out of this. Roosevelt did it in the thirties, by spending and that what has to be done now. Roosevelt was hampered by a “bail out” that Hoover instituted in 1929, that caused Roosevelt to have less money to spend to start the recovery. And then he went along with conservatives and cut back on his spending, and the economy started to go bad again. That was soon rectified, and then WWII also helped to stimulate the economy, although not like it would have been stimulated if the war had not happened. The war took all the gods produced rather than the consumer buying things.

So the bottom line is that we need in influx of money into the job market. We need to build our economy from the bottom up, not the top down. We know from history that trickle down economics does not work. In 1896 that type of economic policy was called “ horse and Sparrow”, meaning if you give a horse enough oats some would come out the back end to feed the sparrows. It didn’t work then and it doesn’t work today. We have to put more money in the pockets of the working class. They will spend it and that will create a demand which will create production, which will create jobs. Basic law of supply and demand.

Charlie Lockett

Cut employee pay or cut work force

I am not sure there is a specific economic theory that explains why an organization would raise salaries and then lay off workers to meet a budget during a recession. It may have to do with contracts or it may be some type of a negotiating method.

However-
Employers, whether they are public, private, union, nonunion, generally respond to recessions by laying off some workers rather than cutting the pay of a large number of workers. Much of this has to do with the costs associated with cutting pay versus cutting workers. In a union environment, cutting wages usually means reopening a contract and renegotiating portions of it. This can be expensive and time consuming. It can be cheaper for the business to lay some people off during the recession and rehire people when business activity picks up. In nonunion environments, cutting everyone’s pay may lead to some very hard feelings that last longer than the recession. The business may find it easier to cut newer employees than make experienced employees angry. Those angry employees may leave when the business activity picks up.

Kelvin Jasek-Rysdahl

workers it's like giving the people a double whammy. But thats my take on your answer.

Thank you for taking the time to respond to my question.

The bailouts of the auto industry and financial industry and the stimulus packages are being implemented to first stop the economy from going deeper into a recession and then get the economy to grow again. There are differences though.

Bailouts are designed to help troubled industries or even businesses. The automobile manufactures, financial institutions, and airline companies are three areas that have received this type of help in the past decade. The rationale for aid is that the businesses in these industries have gotten into very precarious positions for some reason. It usually has some connection to “market conditions beyond their control.” There are certainly management decisions that also helped create the problems.

It is also important to note that bailout dollars are given because the costs to the economy of industries or businesses failing are considered to be too great to let them fail. This is why we should expect more bailout money for the financial sector. The people making the decisions feel that doing nothing will lead to even more chaos in the financial sector and that chaos will lead to an even larger economic downturn. A market-based economy cannot function without a sound credit/financial system so the President, Congress and the Federal Reserve are willing to put a great deal of money into fixing the financial sector.

Bailouts often involve paying the government back when conditions improve. Much of the aid that was given to financial institutions and auto makers were in the form of loans or purchases of preferred stock. One should expect that these will be paid back. The loans will be paid back with interest and it is hoped that the government will be able to sell the stock at a higher price than it purchased them for.

An important concern regarding the bailouts is that they can create some perverse incentives. Part of the reason these financial institutions are in trouble was that they made some incredibly risky decisions that have turned out to be quite costly. It is very possible that these bailouts will unintentionally encourage even riskier behavior in the future. People will get the idea that if they make a big enough mess the government will come and fix it so they can ignore personal responsibility.

The stimulus package that will be passed does not target specific businesses. There are components of the package that will stimulate sectors of the economy more than others. Spending on infrastructure and construction related areas will help those sectors sooner than others. The goal of the stimulus is to get people spending again. Once the construction workers and others are back to work, they will start spending more money at stores so the people working at the stores will earn more and spend more. This is what is known as the multiplier effect. The hope is that the stimulus is big enough so that the additional rounds of spending will stop the economic slide and jumpstart the economy so it can begin to grow again.

Tax cuts, credits, and rebates operate in a similar manner. The goal is to let people keep more of their money, which they will use to buy things and the multiplier effect will kick in. There is research that shows that the multiplier effect from government spending is larger than from taxes. The stimulus package does use both tools.

People who favor a government stimulus package feel that the current condition of the economy is so bad that the self correcting mechanisms of the economy cannot improve the economy soon enough. They are even worried that the economy will get much worse if left to operate on its own. These people point to rising unemployment rates, record low consumer confidence levels, persistently tight credit markets, and other economic data for support.

The spending and tax cuts in the stimulus package are not loans that require certain individuals to pay back with interest. The government will borrow money and hope the economy will grow so the growth of the economy can be used to cover the borrowing.

The policy makers and their advisors are not able to run all of these ideas through a laboratory experiment to test how they will work, and they are not able to predict all of the unintended consequences. There is certainly a risk that the stimulus package does not stop the slide or the economic growth that follows falls short of what will be required.

Kelvin Jasek-Rysdahl

Are we serious? What is the difference between a bailout and a stimulus package? Let's just keep it dumbed down for all us average Americans who can't possibly understand basic supply and demand...(if there is more of something in the world then it is worth less and vice versa) I see the bailout vs stimulus as a choice of words and nothing more. Both words have been used synonymously with the Troubled Assets Relief Program of 2008 (TARP) that provided "stimulation" to the financial sector by purchasing "troubled" assets; in essence bailing them out of the looming pit of disaster that they have brought upon themselves and the rest of us. It's like using the words "to-ma-toe or to-maa-toe"...its one in the same, just a different way of saying it! Why is it that people's agendas always seem to get in the way of the truth??? I thought the "truth would set us free?" but I think to most ignorance is bliss! and yet to others half-truths suffice in place of the whole truth!

The truth is out there! Read the book, Enron: The Smartest Guy's in the Room, or the documentary by the same name and tell me this current situation isn't a replica of the "social darwinistic" mentality encouraged from the top of that company on down to the bottom and the subsequent greed and lack of humanism that was created and fueled amongst its employees. ENRON was the guinnea pig or lab rat and it worked. It worked so well that our government chose to implement mark-to-market accounting throughout the banking industry back in November of 2007...WHY???????? Could they not forsee the problems that could come from this speculative accounting?

I found this basic example of how mark-to-market accouting works in theory:

Example: If an investor owns 100 shares of a stock purchased for $40 per share, and that stock now trades at $60, the "mark-to-market" value of the shares is equal to (100 shares × $60), or $6,000, whereas the book value might (depending on the accounting principles used) only equal $4,000.

Similarly, if the stock falls to $30, the mark-to-market value is $3,000 and the investor has lost $1,000 of the original investment. If the stock was purchased on margin, this might trigger a margin call and the investor would have to come up with an amount sufficient to meet the margin requirements for his account.

The problem now would be how to establish what a fair market price is for anything since everything has been open to speculation! Any suggestions? How about a new currency?

I am a union represented county worker. I have no problem being asked to do more with less, to consider a furlough twice a month, etc. I tell you what I have a problem with - last union negotiation, we were told the county was out of money and that the best contract we could get was 0%, 0% and 1%. We were later told this was necessary so that we could keep our benefits in place.

Three weeks after signing the contract, the Board of Supervisors of the county in which I am employed voted themselves a SIXTY PERCENT RAISE.

It was also released to the public that every department that came in under budget? The head of that department was awarded with a bonus of upwards of 50k, depending on the department.

tell me again - who gets the shaft when times get rough?

LSK , I understand what you are saying. During Reagan’s first term, there was a major recession, always happens when you cut the taxes of the upper tax brackets. I was living and working in Seattle, as a Union Fitter, we went back to the negotiating table because the companies were crying poverty, and talking mass unemployment. Well we redid our contracts, and we took a cut in pay of a couple of dollars per hour. Within a week of signing that new contract the companies gave their salaried people a bonus of 10%.

What that did for me was to re-enforce that old adage of how Republicans are for the rich and the Democrats are for the working class. It had always been up in the air for me until then. For years I thought there was no difference between the two, that awakened me to the differences between the two. I saw the light, and began to understand what all those old timers were talking about. Until that time I had been pretty conservative in my politics, although I was never a “Conservative” as such.

I had been studying politics for some years, I failed to really see the differences between the two. Reagan was a throw back to the old Republican Party. The party of Harding and Coolidge and Hoover, with the same tax policies and class separation, rich and poor. Hence an ultra-liberal was created.

Charlie Lockett

Take into account there are more human beings on the planet than ever before and we are edging closer to the global economic precipice of our era. Then remember basic supply and demand: If there are more of something (i.e. human beings) then their value decreases since their is an abundance of us. (A terribly inhumane way to view the world yet I do believe some educated individuals out there realize the sustainability issues of our species and take it to the extreme...(Population control) The NEW DEAL, helped but did little to alleviate the Great Depression. What did? World War II. Soldiers were no longer at home, unemployed but off fighthing using guns and ammunition being produced at home by those men, women, children left behind. Unemployment figures went down as there were less people at home for the new production and manufacturing jobs that had been created by the war. Nationalism was, and is, used to guise the reasons and promote support...Be wary of a desperate man; volatile and irrational he tends to be. So what will get us out of this current "economic catastrophe?" as Obama has put it? I leave that up for debate.

had gone into a total war time economic strategy after 9/11, do you think we would have avoided all this mess right now? There were specific regulations in place during WWII that restricted our way of life. Would that have helped, do you think, or hurt?

Charging the Iraq war was and is devastating to us.

It would have changed the economic climate.

But lets put that up too as a question.

Isn't every war we have fought since 1776 one that was 'charged' against the future? I understood, and I may be wrong on this, but the quotes by Thomas Jefferson used by the left and the right to bolster their agendas on the baliout/stimulous/whatever package were in response to the problems we had with the debts incurred by the War of Independence.

I guess my question then becomes, if the country has always been in debt and that is the way the economy has functioned from the beginning, what is it that makes for these periodic hiccups in the world economy? This is hardly the first 'depression/recession' the world has ever seen so...it seem cyclical to me. Am I missing something in the equation?

A few quotes from two of our country's greatest forefathers:

"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety."

-BEN FRANKLIN (yes the same guy on the $100 bill)

"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."

-Thomas Jefferson

"Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains."

-Thomas Jefferson

"My reading of history convinces me that most bad government results from too much government."

-Thomas Jefferson

"In matters of style, swim with the current; in matters of principle, stand like a rock."

-Thomas Jefferson

"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

-Thomas Jefferson

Professors -- This question came in by e-mail from Ward and I said I would post it. Judy

The question:
How can the Federal Reserve be spending Trillions of dollars on the financial bailout without any Congressonal authorization or even any public debate? These 'loans' they are giving out are for the purchase of troubled securities, so almost certaianly will not be paid back in full or at all. This is an expenditure of public funds as far as I am concerned and requires Congressional authorization.

The Constitution of the United States, Article 1, Section 9 dealing with the powers of Congress states in part "No money shall be drawn from the Treasury but in consequence of Appropriations made by Law; and a regular Statement of Account of the Receipts and Expenditures of all public Money shall be published from time to time."

There are three main causes of the federal government’s deficits and debt.

Wars—For example--In 1941, spending on national defense (this includes military spending) was 5.6% of gross domestic product (GDP). It increased to over 37% of GDP in 1944 and 45. Since 2000, spending on national defense went from $294 billion (3% of GDP) to $552 billion in 2007 (4% of GDP).

In 1940 the debt of the federal government was about 52% of the size of GDP and went up to just over 121% of the size of GDP in 1947. The debt of the federal government was 58% of the size of GDP in 2000 and over 65% the size of GDP in 2007.

Recessions—Two things happen during recessions. Government spending increases because more people qualify for government programs, and tax receipts fall because the incomes and profits fall.

In 2001 (8 month recession), federal government spending increased $74 billion over 2000. It increased another $148 billion in 2002. About $64 billion of the increase in 2001 and $104 billion in 2002 was for things other than national defense. Government revenue fell from a little over $2 trillion in 2000 to $1.9 trillion in 2001 and $1.8 trillion in 2002.
(All of these data are from the 2009 Economic Report of the President, statistical tables which you can access online at http://www.gpoaccess.gov/eop/)

Political will—Politicians find that it is easier to increase spending and decrease taxes than it is to cut spending and raise taxes. I am not aware of an easy way to illustrate this in dollar terms. Voters are to blame for this as well.

A couple of the posts mentioned something about the ability of the war to prevent the current recession and comparisons were made to WWII. I am not exactly sure I understand the question here, but the relative size of the two wars is vastly different. Some of the numbers above illustrate this. The total loss of life in the WWII was much larger in absolute numbers and relative numbers than in Iraq and Afghanistan. I do not think it would have been a wise decision to expand the war to equal that of WWII to avoid a recession. The cost in human lives and other resources would be almost unimaginable.

I don’t think we can take the experience of WWII and simply apply it to today. The regulations that took place in during WWII were to make sure as many resources as possible could be made available to fight the war. The war effort in the 40’s was a total national effort and the government was significantly involved in almost every part of people’s lives. Federal government spending in 1943 and 44 was over 43% of GDP. It was been around 20% of GDP for the last 2 decades.

Regarding the question about the Federal Reserve’s authority:
The Federal Reserve Act was passed by Congress signed into law by President Wilson in 1913. The Act has been modified and revised a number of times since then. I found the following at the Federal Reserve Discount Window website (http://www.frbdiscountwindow.org/mmmf.cfm?hdrID=14#f2) regarding its Asset Backed Commercial Paper (ABCP) Money Market Mutual Fund (MMMF) Liquidity Facility (AMLF or "the Facility"). The Federal Reserve’s answer to the question “What is the legal basis for this program?” is “The AMLF program is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. It also is authorized under Section 10B, which authorizes Reserve Banks to make advances to depository institutions.”

This program is not specifically what the question was about, but I tried to find something quickly. The Federal Reserve is using these programs to extend credit to a number of institutions that it normally does not interact with. It is my understanding that these provisions were added in the 1930’s and that this is the first time the Fed has used them.

Here is a link to more information regarding the Fed http://www.federalreserve.gov/aboutthefed/fract.htm

Kelvin Jasek-Rysdahl

There is a substantial difference between our current and recent wars in contrast with WWII. The major difference is what LSK49ers eluded to with his/her response about going "total war" after 9/11...the problem was there was not a sovereign nation attacking the world trade center although our governement has tried to assign blame to many, Afghanistan, Iraq, and now Pakistan and soon I'm sure Iran. In WWII the "good guys" and the "bad guys" were clearly defined and associated with their respective "nations". A total war economy was the only thing that took the world's mind off the economic despair and replaced it with nationalistic pride; in turn, providing us "sheep" a tangible enemy to vent our frustrations upon. The governments of the world are aware of this now and to compare the wars in Afghanistan or Iraq with WWII in the sense that they are similiar in any regard (other than the loss of life and changing of lives forever) is missing the bigger picture. A bit off topic, but really to understand the entire picture we cannot just concentrate on the issues domestically but take into account the severity of the crisis globally, realizing we are the major cause of it. I find it interesting that Osama Bin Laden is from Saudi Arabia, yet we have not began looking for him there? The same Saudi Arabia who has donated generously to Bill Clinton's global charity...there is no conflict of interest with our newly appointed Secretary of State??? All of these coincidences are related...and more... But to respond to LSK49ers I am not a promoter of war, but of peace...I just wanted to illustrate the possibility that there are those who think opposite of me out there who want just this...Look at Halliburton, the Iran/contra affair, Enron, Saudi Arabia's oil, etc... I think total war will be used again this time.....Let us wait to see what the next powder keg will be like the assassination of Arch Duke Ferdinand of Austria in the Balkans that led the world into WWI! Pakistan perhaps??

When you say that FDR did nothing to make a significant difference in the Depression, you are ignoring the real facts and quoting right wing talking points. In 1933, when FDR took office the unemployment rate was at 25-30% of the population. By 1938 it was at 11%. At that time he cut spending and the economy started to take another dump and the unemployment rate started to go back up. Then came WWII and that was a major boost to the economy, naturally, we had the whole country involved in the war effort, even the kids. Check your facts, mine are correct. Another thing everybody bought War Bonds, during and even after the War.

All of our wars have been fought on borrowed money, the difference is paying it back. The nation debt including the debt for the Viet Nam war was less than a trillion dollars when Reagan took office, by the time he left office the national debt was over three trillion dollars. A great deal of the debt that was incurred was money owed to the holders of War bonds. That in itself is a major difference.

The underlying factors here are basically the same as in 1929. We have deregulated the banking industry, cut the marginal tax rate, and increased the tax on the working person. In 1928 we had a housing problem similar to what we are experiencing today, maybe not so wide spread, but the bottom fell out of the housing market, none the less. We had a marginal tax rate of about 25% and deregulation. Same thing as today.

The problem we have today that we didn’t have in 1933, is we have no manufacturing base as we did then. Most of it has been outsourced, and that will make it more difficult to rebuild the economy. We also were using our own oil, where now we import oil. Granted it’s only about 25%, but without it we would come to a standstill.

To say that the New Deal did nothing to stop the Great Depression is an insult. My dad came to California during that time to help build the Golden Gate Bridge. I have known many, many people that were put back to work in the CCC camps and the WPA, where before those programs were instituted there was no work. People worked and got paid and they spent their money and the country started to climb out of the Depression. That’s the only thing that will save this economy now, and the only thing that saved it then. In fact before that we wee not the most powerful nation in the world. Those programs and the GI Bill helped establish the middle class in America, and brought the world an economy, built of the middle class, that had never been seen before. And we can do it again, but it isn’t going to be easy.

Charlie Lockett

If the subject is economics, my question has to do with the California budget debacle. How did the 2/3 supermajority requirement evolve? Was it part of the original California constitution, or was it amended with the new requirement?  And...was it put into law with a 2/3 vote, or on a simple majority vote? It is my contention that a supermajority requirement should never be put into law on a simple majority vote. Thank you.

One reason to look back at our current economic situation 20-30 years from now will be to see what worked. The objective of the “stimulus” is to rescue companies that have hope of digging themselves out. There is an example of a bailout which worked. Lockheed (Lockheed-Martin today) and Chrysler were denied private sector financing when they needed it years ago. Congress agreed to guarantee loans to them. As part of the agreement the federal government received stock options. Both Lockheed and Chrysler recovered and were able to pay off their loans. The options grew in value and the federal government made a significant profit from the loan guarantee. There was of course risk.
A stimulus does not have to have in mind help to specific firms. The objective of the current stimulus is to get the economy moving. There can be many means of doing this. For example, tax cuts or spending on public sector capital improvements or new projects such as road and schools.

Edward Erickson, Professor of Economics

stimulus and bailout packages. what's the difference?

_____________________
Forklifts

Father in the 1960's made $35,000 and was VP Finance Kemper Isurance Compnay; his mortgage was 1.5% on a beautiful home, made xomfortable for the seven kids at home, Chicago Northwest suburbs

1994 on mothers demise introduced to his counterpart then at Kemper, making in his job from the 1960's; $240,000 while homes, my fathers was a Model and cost $30,000; reasonable.

In San Fran I ran a Company and was paid $120,000 a year, with vehicle and monthly expenses at $250 per week and homes $375,000 except in Liveromre and Central Valley and mortgage was at 13%, Carters "malaise: and a 4.5% increase in rates within 90 days.

I guess  LSK49rs corporate greed with acompanying deceit of real estate brokers in jacking up home prices. No one in my opinion is worth over $500,000 a year, could buy a nice home. car and send kids to school. When I went, Creighton University cost me $3,800 per year.

It sucks, greed has taken over and thats the easy the comparitives made are accurate

I'd definitely agree that one way to offset this financial pit is by charging a flat tax on 'luxury' items, as well as sin and entertainment.

I also believe that the "homeowners" that willingly lied on their mortgages should have charges pressed against them personally AND should pay back their debt over their lifetime (no chapter 7). This is where a lot of the economic downfall initiated - we were exceptionally overloaded with too many questionable loans in the first place. For example, and I apologize for not have the link....but, I recall reading about a young man than earned $700/wk, but claimed he made $4,000 a week in order to qualify for a $500,000 mortgage with nothing down (no doc loan). Well, when times were great, he refinanced a couple times and bought his lexus, pool, vacations, etc...THEN when things dropped, he now gets to run to the government hoping for a freebie handout. Well if that's the case, why doesn't the government also help all the others that have seen a 50% decline in their stock portfolios? The ONLY difference is that investors in stock did things legally and good intention. ISN'T it illegal to willingly state incorrect information on a mortgage, even if it is a no-doc loan? I believe these people should not only lose their homes, but should relinquish it to a teacher, fire fighter, military or police officer at a DEEP discount. It's amazing how these faulty 'homebuyers' never complained when their lying made them 100's of thousands. THIS I believe was a key ingredient to the economic downfall. I apologize for garbled posting, but it's been a relatively long day...

BT

someone speak to this issue and it is not so much a matter of falsifying records but more an issue of what was needed and accepted by companies to verify income...I was shocked to find out that a simple letter from someone was accepted as 'proof' of income.

I like the idea of a consumer tax rather than a flat tax...I think that might be a way to make sure everyone who buys anything is contributing to the upkeep of the infrastructure.

Hi LSK49rs,

"I was shocked to find out that a simple letter from someone was accepted as 'proof' of income."

I still believe that IF someone willingly misled/lied and CAN NOT absolutely prove that what they initially claimed prior to accepting their mortgage (that's defaulted or in default and looking for a bail-out) is correct, they should NOT receive bail-out support, and they should be fully liable financially and legally for their intentional wrongdoings.

Bud Thomas

the gentleman that shared this information was a former wholesale mortgage salesman. He stated that prior to the mid-1990's, much more than a simple letter was required as proof of income; however, under Janet Reno, loan companies were told that if a certain number of loans were not made to minorities or 'economically disadvantaged caucasians' the companies would face fines. In all fairness to Reno, this was not something she came up with on her own; rather, it was a reaction to the very real problem of 'red-lining' that was being practiced in the Real Estate sector.

HOWEVER, one of the ways that the companies used to qualify people they KNEW would not be able to keep up with their mortgages was this: say I had gone in and told the truth about my income. It is ok, but it is certainly not enough to qualify me for a 4 or 5 hundred thousand dollar home. BUT I tell the loan officer that I work, out of my own home, as a babysitter and make an additional 15 or 20 grand a year...now I may make enough money. The companies required people to produce a letter from three people who stated they used my services. The 'check' of the sources would be a phone call to make sure the name on the letter matched the telephone number and address submitted. That was it.

Now, mind you...this is information I got during a lecture. I have no way of knowing if this was true or not, but the gentleman speaking was quite adamant about it and stated that the people in the business KNEW they were perpetrating fraud.

He also said a common 'promise' made to these buyers was to get them into a 0% loan and then tell them not to worry because they could refinance in a few months. Then, when they went to do so their property had gone down in value and they were no longer eligible for the refinance. But I am not real clear on how that can work or not work.

The unfortunate thing about the mortgages is that regardless of fingerpointing, the bottom line is that the 'buyer' (esp. after committing to SUCH a sum of money), should've consulted an attorney or at least fully understood what they were getting involved in. This is a legal document and firm committment.

Personally, I don't believe that ANY sub-prime loan should've been available to those with no documentation. BUT, a buyer CAN'T just point the finger and blame it on the mortgage brokers/companies for simply requesting the buyers 'word'. For example, even when I had purchased a house during that period (no doc loan btw), I told them what I made and I qualified for $x. However, the broker told me that I could actually go much higher than that, due to my income. We'll even though I COULD have done so, I chose to take the responsible route to something that I COULD afford EVEN if interest rates went up (I took out a fixed rate) AND I assumed worst case scenario (i.e. loss of job, bills, etc.). I took the responsible route and still have my house. WHY are the irresponsible buyers blaming others for their misfortune? What about when these irresponsible buyers had their homes appreciate dramatically and refinancing again and again?

You CAN'T hold the 'offerer' of the mortgage responsible, but WE HAVE to hold the borrower responsible for their actions. They need to own up to it and shouldn't blame anyone else for their irresponsible behavior.

Bud Thomas

Thank you for your site. I have found here much useful information...
viagra online
cialis online
buying cialis