after it failed the first time, the Senate added $150 billion worth of pork in order to get it passed and the House was under too much pressure to even consider holding it up.

Average housing price goes back to historical averages in terms of price to income ratios.  We still have a way to go.  Any government attempt to prevent this is doomed to failure.

Prices are still heading to normal.



The supply is piling up.
images courtesy of Calculated Risk

Liquidity is not the problem.
The high cost of houses is the problem.

It's not strange that we are in free fall.
It's strange that it went so high.

I must admit that as a homeowner... this all makes me pretty unhappy.

is that our tiny housing bust has crippled the global financial system.  It has spiralled the world into recession.  International trade was supposed to afford us a recession proof world.  If one country went down, another one would pick up the slack.  But the world as a whole is feeling our pain.  If America had lost popularity because of Bush's unilateralism, then this American caused crisis has absolutely wiped us off the freakin map.

even though less than 700 points.  Final figures were 678.91 points and 7.33%, the largest percentage drop of the year.

how Frank and Moran added the clause in the 700 billion dollar packet.  They too were saying there was some things purposefully left to interpretation, somewhat vague.

From your article...

"...."assets" as including preferred shares, left to itself, was a real stretch of the meaning of the legislation as preferred shares and common shares and sub debt are liabilities - rather than assets - of the bank. Thus, it was important to clarify that "any other financial instrument" was not limited to assets but also included institution's liabilities such as stock, preferred stock, subordinated debt, senior debt."

Too bad McCain, who suspended his campaign, grabbed the spotlight, sat with the President and went out to dinner did not think of it.

OOOPPS:{

how over the top angry the white men were in the videos of the McCain-Palin rallies? I mean, about the Democrats and Obama causing the Wall Street meltdown and the economic damage. The free trade leaders of the Republican Party seem to have successfully deflected the populist anger away from themselves and on to the Democrats. My rightie son sent me a long e-mail, which is apparently making the rounds, that gave a documented time line of how Obama and Pelosi and Reid forced Fannie and Freddie to make loans to losers who could not pay their mortgage, and from there the whole housing balloon occurred, the subprime meltdown was set up, and Wall Street crashed. QED. Democrats' fault, especially Obama, the damned Communist terrorist.

Beware the self-righteous anger, fueled by Palin-McCain every time they open their mouths. Violence is coming.

I just don't get how the U.S. Gov't effectively nationalizing banks fixes this particular problem.

Paul Krugman is 100 times smarter than me, but I'm not certain he fully understands the causes of our current problem.

Here is the simplest way I can explain the problem with Krugman's analysis:

His biggest criticism of the TARP plan was his insistence that the government would overpay in the market for MBS securities. How did Krugman know this? The problem with these securities is that they are difficult to value for a variety of reasons, a sketchy housing market being among them, but there being many technical reasons as well. Hence, Paulson's proposal of a reverse auction.

But since Krugman is so smart, I guess my question is this: If the U.S. Government will be so pathetic in valuing MBS securities that it will surely overpay for them, how on Earth can it value the equity in the banks that hold these assets?

We are in that FDR stage when we need to try everything to pull people back from the brink.  Whatever works at this point.  Do you not feel like we are living in upside down world?

Sure, lets throw a lot of different stuff at the problem. Eventually, all this money will have an effect.

Personally, I think government taking direct equity in financial institutions is a bad idea and an over-reaction. It seems like a good idea on the way down, but it will serve as a impairment on the way up.

Some of the other thinking I have seen from Progressive economists who are really smart seem to me to be saying that the very foundations of our economic system have failed and need to be changed. I am honestly not knowledgeable enough to grasp this. , although I think as a political matter this is the kind of wrenching change that occurs over a generation. It may be conceived in a financial crisis like the one we are in, but it is no short-term answer to the crisis.

The problem is that there were two main arguments mounted from the Left on the TARP. The first was that it would not work because the government would overpay for troubled assets. This, however, begged the question. Sure, if the government overpaid for the asset, it would simply transfer the problem from banks to the taxpayer, which in the long-run would be a bad idea. I didn't understand, and I don't understand, how these economists know that, since no one knows what these securities are worth. I also don't understand that if these economists do have some super-secret insight into the true market value of these securities why they are not in the market right now.

The other argument was the power grab by Paulson, Bush, et al, and the fact that this gang is corrupt. Give them $700 bil, and they will just enrich themselves and  their cronies.

This argument actually has some merit. The problem was that there is simply no alternative but to trust these guys at this point. Yes, the messed up Iraq, Katrinia, and plenty of other stuff, but until Jan. 20, we are stuck with them. Congress took care of this: Do the minimum necessary now, and let Obama fix it when he gets in there.

But, again, I'm not sure why purchasing equity in banks is a solution to this, since it will be done by the same corrupt gang.  

Whether it is buying troubled assets or injecting equity, the idea is just to recapitalize the US banking system.  Debt purchases with warrants or preferred shares that can be converted into common shares purchases seems like six of one half a dozen of the other to me.  It's easier to just buy shares because you have a price point in the market.  I figure this is why the Treasury is adopting this approach now.  Because they need to do something and do it quickly.  Banks and bank shareholders are going to hate this, but immediate injection is better than waiting several months to get this asset purchase program up and running.

The IMF has a good paper on Japan's banking crisis and it seems very similar to what we are experiencing.  It would seem that we have learned some lessons from that crisis.  We are at least responding immediately with a whole lot of money in the face of public opposition.  So, we appear to have at least learned that lesson.

I find comfort in that song these days.