"The problem with government driven demand, is that being great in principle is sub-optimal in practice -- as the gov. can not really know if an investment of x$ will produce a growth >x%."
Come on - neither can a private business or individual!
Oh...except for mega-financial entities able to blackmail governments with threats of crashing the whole system and the global economy along with it. A look back at history shows that every financial crash has at its core the same kinds of massive frauds that generated the 2008 crash. Government should simply assume history has repeated itself and act accordingly.
Every failing bank, hedge fund, etc. should go immediately into receivership for as long as it takes to trace down the legitimacy of every transaction. In the meantime, there should be a national bank that, for instance, collects all mortgage and credit card payments until the auditing process is finished. Had this been the system, the outrageous level of risky business transacted would never have happened.
Being where we are, though, what will help?
The Federal Reserve should withdraw the $16T support under the zombie financial system and distribute it equally to every man, woman and child in the US over the next year. Given levels of private debt, much of it will pay down debt to these same banks. Some will start businesses, others pay for college or deferred purchases. What could be a more free-market solution?
When one answers this question, Boskins' nonsense is revealed: Would you rather make 3% risk-free while on vacation, or 7- 10% with the possibility of losing all your principle while working long hours? Our "job creators" are a lazy bunch!
I allege that the truth is that much of the mortgage securitization was extra-legal. Glass-Steagal wouldn't prevent the regulatory capture at the heart of the 2008 crash.
Start with MERS, the entity set up by the mega-banks and Fannie/Freddie specifically to circumvent state laws requiring all transactions encumbering real estate to be publicly recorded (for a now-avoided fee), thus ensuring infallible chain of title to property rights.
There should never arise the slightest possibility that a borrower, having paid off his mortgage to the bank (Servicer) claiming it's owed the debt, could be presented an original note showing that the owner thereof was never paid. Yet, that is precisely what MERS and MBS have given us.
MERS said that it kept equivalent records electronically, with original paperwork following within 90 days. That rarely happened, and Servicers are now unable to produce "wet ink" original promissory notes (the negotiable instruments) during foreclosures or bankruptcies, or even for mortgage satisfactions.
And that's why robo-signing hit the news - they were reconstructing chain-of-title documents to replace the required assignments that were not contemporaneously executed in MERS with the sales of the note. Judges are setting aside mortgage debts and bankruptcy claims when this is found. Further, some borrowers have proven this fraud to their Servicers such that banks are forgiving large chunks of debt or streamlining generous modifications outside any government programs for such.
This desperate robo-signing measure shows how desperately the MBS industry needs to hide something - its violations of securities laws.
You see, the wet ink notes had to be gathered into Trusts. A Trust had to sell its MBS tranches and close within 90 days so the investors could receive tax advantages under REMIC. That's why MERS had the 90-day rule.
What really often happened was that investors were sold the MBS before the Trusts owned any notes. Once investors' money was Warehoused, then Originators were sent the underwriting instructions and the mortgages were written and the notes placed into the Trusts. That means Prospectuses provided to investors were frauds. Some large investors like pension funds are litigating this.
Given that the federal government protected big banks and AIG from their at-risk losses, it's hard to understand why the Justice Department hasn't thoroughly investigated and prosecuted these shenanigans and collected $billions. Well, sigh, maybe not so hard, given political realities.
But think of this...suppose one could prove that his mortgage has already been paid off through TARP and QE machinations? Some few have such proof in hand. Maybe that could begin to change those political realities.
So the 47% are supposed to be experts in every facet of modern life so they don't crash the world economy by participating in the real world the 1% sets up? They're supposed to disbelieve every pronouncement by those in charge of setting up the systems, regulating them and praising their performance? Based on what transparency of information that supposedly guides the invisible hand?
OK, let's just say the 47% deserve all the blame...why don't we just find a way for them to "die and reduce the excess population".
It is the glorification of greed that is the structural problem.
When the crash dried up demand from my top-20%-of-US-income home remodeling/repair customers, I turned to credit to cover my fixed business costs temporarily (I thought), conserving savings. The audacity of hope...
Despite a pristine credit record since 1979, no business credit was extended. The only thing left was personal credit cards. As the stimulus bill kicked in, demand increased, but only for low-profit "must haves", not lucrative improvements.
At the same time, reliable tenants lost their jobs and rents became sporadic. I could not call up adequate ruthlessness to kick them out summarily after years of timely payments. None were able to catch up fully before finding subsidized housing, these proud skilled tradesmen and teacher assistants and EMTs and LPNs. OK, so those losses were my own fault.
Even so, I could've paid off the credit, maintaining my pristine credit record, and lived a reduced, but comfortable lifestyle. Instead, in early 2010 the TARP recipients reduced my credit lines to the amounts owed, lowering my FICO score. Based on that, they then tripled my interest rates, devastating cash flow.
Now my savings is gone (pristine credit record intact so far). I haven't had needed health care since dropping insurance in late 2010, and I'm physically unable to perform enough work in a week to survive at the 27.7% of my former hourly rate my old customers are willing to pay while they take trips overseas and buy up beach houses. Oh, puleeze accept my sincere apologies for that little bit of resentment leaking out.
The $100 more per work day that would fix my situation (and still be half the pre-crash price) is less than they spend nightly on dinner out (I know - I used to go to those places once in a while).
So, to all the commenters here who love the free market and hate collectivism in all its forms, watch out when unemployed labor uses its forced leisure to exercise its market power. You can reap the harvest of your ruthlessness or share the harvest of your grateful kindness with the society that enabled your success.
We don't have an economic problem. We have an ethics problem.