Obama's Mortgage Bailout Plan

[eyeball]

msj, I think the key point (IMV) is that regulations don't stop speculative bubbles. (I'll admit that government can prevent panics but in doing so, government may exacerbate bubbles.)

When some people are wrongly terrified that they will be poor, government (society) can step in and reassure them. But when some people are (wrongly) convinced that they will be rich, I don't think government (anyone) can convince them otherwise.

Bubbles (false euphoria, irrational exuberance) are a fact of life.

It seems to me panic usully sets in even faster whenever someone proposes governments try to prevent bubbles - 'let the market decide' the people cry.

[August1991]

It seems to me panic usully sets in even faster whenever someone proposes governments try to prevent bubbles - 'let the market decide' the people cry.

A panic is far, far worse than the collapse of a bubble.

This is the collapse of a bubble, managed by ordinary bureaucrats (Bernanke) and neophyte politicians (Obama). It's nothing like a panic.

Greenspan managed these collapses far better, indeed too well.

Edited February 28, 2009 by August1991

[msj]

A panic is far, far worse than the collapse of a bubble.

This is the collapse of a bubble, managed by ordinary bureaucrats (Bernanke) and neophyte politicians (Obama). It's nothing like a panic.

Greenspan managed these collapses far better, indeed too well.

The problem, as Floyd Norris mentions in the New York Times, is that "n sum, the Fed thought it had learned the lessons of the 1930s, but it had not learned the lesson of the 1920s, that allowing asset prices to soar to absurdly leveraged heights could lead to a financial collapse as the need to repay loans forced sales that drove prices lower, resulting in the need to repay more loans, and so on and so on."

At least the leadership at the Fed is in place now to deal with the lessons of the 1930's (Bernanke does know his history better than most).

It is too bad that Greenspan's ideology would not allow him to know the history of the 1920's (and other eras) since he was unable to understand that, yes, bubbles really do exist.