Credit Crisis 2008
Debt Financing crisis of 2008
It may look like a crisis, but it's only the end of an illusion.
kicked off by the Sub-Prime mess?
- see movies/books
Thomas Palley says it's the outcome of the "GreatModeration" - the flattening of Business Cycle (downsides) at the cost of a retreat from Full Employment combined with the transitional factors of disinflation, asset price inflation (Real Estate, CommoditIes, end of Cheap Oil), and increased consumer borrowing (Consumer Debt)
Aug'2014: Brad De Long thinks it's time to call this a Depression.
My policy recommendations (Mar'2009)
Stabilize Debt Financing market (Bail-Out?)
- re-impose Glass Steagall, undo CFMA
- split up every bank into these pieces: Commercial Bank; Investment Bank-ing services; Hedge Fund (the trading-for-their-own-account desk)
- the Commercial Bank gets as many assets (esp liquid) as are available to meet FDIC requirements, etc.
- next comes the Investment Bank-ing arm
- anything left goes into the Hedge Fund business
- force change in Credit Rating industry: buyer-pays instead of seller-pays
Stabilize Mortgage Debt market (Sub-Prime)
- nobody really deserves rescuing here
- but some sort of managed-WorkOut needs to be imposed 2009-02-12-BankForeclosureBattle to reduce fear/panic (the mortgage holders don't really want to end up sitting on a bunch of empty houses - they're just playing chicken)
- wind down FannieMae and FreddieMac
- provide subsidy to turn of some of the empty space into Third Place-s [z2009-03-14-HeifermanSocialStimulus]
Serious Anti-Trust revival.
Economic Stimulus: what is worth adding to National Debt?
- accelerate exit from Iraq and Afghanistan (yeah, it's not going to help in the next 6mo, but it will help a year later)
- rip out chunks of Farm Bill that give Subsidy to Big-Ag
- increase Carbon Tax, offset with reduction in Income Tax rates (or increase in the standard deduction)
- legalize Marijuana and tax it (without getting the FDA involved)
- immediately raise Retirement Age associated with Social Security and Medicare, and put in means-testing
- help the states with big deficit problems, esp associated with UnEmployment
- reduce lots of Red Tape for companies with fewer than 50 people (SmallCo)
- (added Apr06'2009) claw-back the Analog Tv Spectrum (not just Analog Tv White Spaces) and make them public space for OpenNet.
Meta-issue: this is really just a financial-system symptom of an underlying Economic Transition. So cleaning up the Financial System breakage might reduce its drag on the future, that won't necessarily "solve the problem".
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