sck5,
Read the
Atlantic article and then tell me when
everybody knew it was an unsustainable bubble.
The author thought it was a bubble but then saw a house he thought he might buy go up in value the next two years in a row after he didn't buy. He didn't buy a house the following year and, the one he didn't buy went up the next year. Investors thought the same thing. Those who were bearish for the longest period of time either lost their jobs or lost their investors. It's kind of tough to be bearish when the guy at the desk next to yours is still providing his clients 30% returns on investment two years after you turned bearish. Everybody did not know. And, as far as the market itself goes, there's damn little that increased regulation would have done about it. The one obvious area where increased government oversight was needed, in Freddie and Fannie, where outright fraud did occur, increased oversight was rejected by the Congress (see CP's tape above).
Meanwhile, we're now throwing everything at it but the kitchen sink. We've already spent enough tax dollars that we could have bought every mortgage backed security out there at whatever price you cared to assign them. And it doesn't look like things are getting better in the financial markets.
Mr. George Will's latest column is instructive.
RealClearPolitics - Articles - Markets, Not Economists, Will Help the Economy
Some of Mr. Will's points. Retail sales for Black Friday are up from last year. On-line sales are up as well, with more people buying as well. 93 per cent. of the people have a job and 93 per cent of home owners are paying their mortgage on time. Gasoline prices have fallen 66% since July, putting a tremendous amount of new discretionary income into the pockets of the American consumer. And what has come of the government throwing money at the "problem"?
It can be, and it eventually will be, argued that the government should have done NOTHING to stabilize the financial markets, as many who resisted the carte blanche bailout originally thought. But, as Mr. Will states, the professional economists all stated that something must be done. There is an unpopular theory out there that, if you get a majority of economists to agree on something, it's probably wrong.
If we're to see a depression and "stag-deflation" it is more than likely that it will be longer, and more severe, due to the government's actions and not the economy's condition. AIG, Citi, and all the rest should have been allowed to fail and let the market deal with them. Yes, it would have been traumatic but then we could have gotten around to fixing the problem. Instead we're still trying to soften the blow. Of course, the real irony is that, just as in the Great Depression, the real economy is fine for the most part. We're going to let the unwillingness of the government to allow the pigs to take their medicine bring down the mostly successful portions of the economy. And why should the pigs and the piglets do anything other than protect their asses when there's a very likely possibility that the government will bail them out?