Credit Crisis 2008

Debt Financing crisis of 2008; aka Great Recession https://en.wikipedia.org/wiki/2007%E2%80%932008_financial_crisis

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
  • Big Short
  • Margin Call

Thomas Palley says it's the outcome of the "Great Moderation" - 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)

Peter Kaminski summary

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".