Jake Young is a 
Alan Greenspan argues in the Wall Street Journal that the housing bubble was the direct result of geopolitical changes and their effects on long-term interest rates. Therefore, some correction was inevitable:
The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when the economic ruin of the Soviet Bloc was exposed with the fall of the Berlin Wall. Following these world-shaking events, market capitalism quietly, but rapidly, displaced much of the discredited central planning that was so prevalent in the Third World.A large segment of the erstwhile Third World, especially China, replicated the successful economic export-oriented model of the so-called Asian Tigers: Fairly well educated, low-cost workforces were joined with developed-world technology and protected by an increasing rule of law, to unleash explosive economic growth. Since 2000, the real GDP growth of the developing world has been more than double that of the developed world.
The surge in competitive, low-priced exports from developing countries, especially those to Europe and the U.S., flattened labor compensation in developed countries, and reduced the rate of inflation expectations throughout the world, including those inflation expectations embedded in global long-term interest rates.
Read the whole thing.
In an interview on NPR he also argues that this situation reveals the limits in the ability of central banks to regulate the economy.
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Right. It has nothing to do with the banks, way back in the 80s, screaming and begging to be de-regulated. Oddly, one of the reasons given for deregulating banks was that they would have more flexibility in writing mortgages for marginal cases who would not be accepted under the current (1980s) rules. Now all those marginal (or worse) mortgages are coming home to roost. What do the banks want now? A bailout. And (drum roll please), you guessed it, more deregulation.
One of my specialties in history is economic and industrial history as it relates to railroads. In the late 1800s, the railroads were driving themselves out of business. If two railroads had parallel routes, both kept undercutting the price of the other railroad (sort of like what deregulated airlines are doing now) with the idea that, when the other railroad is gone, they could charge whatever they wanted. The Interstate Commerce Commission was created with two purposes (and the few today who are even marginally aware of the old commision only remember one (guess which one)): to stop railroads from overcharging in monopoly situations, and from cuttin their own throats in non-monopoly situations. Railroads were deregulated under the Stagger's Act (1980s) but are still very heavily regulated.
Flash to airlines, banks, communications, and power supply: these industries were deregulated in the 1980s. They went from reliable modest returns on investment to either giving massive ROI, or going bankrupt (Enron, PanAm, Eastern, whatever the telecom company was that went belly up a few years ago, BankAmerica, etc.).
If the banks want a bailout, they need to admit the problem. The problem is, most business models cannot avoid the pressure of short-term profits over long term viability. Sure, we can bail out the banks (as long as some of the bailout helps the mortgage holders, too), but they need to agree to put the regulations to prevent this mess back into place. In other words, the free market only works well if it is regulate.
Just my own opinion and my own rant.
Posted by: Billy (A Liberal Disabled Vet) | December 14, 2007 11:51 AM