We can argue semantically about what easy credit means, but I interpret it to mean that credit is too easy to get, i.e., higher and higher levels of risk being acceptable to get money at roughly the same interest rate is effectively the same thing as saying that “securities backed by those loans were marked as being good investments when they were not.”

Okay, what I meant by "easy credit" is credit that you can obtain at low cost (low interest), which makes expensive purchases more attractive as they can be paid off over time without incurring too much additional expense. A company putting off buying new equipment on high interest credit may be more inclined to purchase now that interest rates are lower, thus injecting cash into the economy now.

Your definition is what I consider "inappropriate credit", where people are given more credit than they can afford. If the credit taken out by the business will likely be paid off, then it is a good investment. However, giving large amounts of credit to someone who is not likely to be able to pay it off is a bad investment, even at the high interest rates an ARM resets to.

The more money the government pumps in, the longer the day of reckoning is postponed and the worse the crisis gets. It’s not like there’s no downside to throwing more and more money at this problem.

I don't know how much the government is floating loan holders, I honestly haven't been keeping up with too much of this because little of it effects me at the moment since I don't own a home, or any investments backed by mortgages.

I’m also not sure I agree about your root cause of the depression. I was taught that the primary problems that caused and lengthened the depression were protectionism (Smoot-Hawley) and that there wasn’t any money available period, not that money wasn’t available at 5% instead of 8%.

I didn't say it was the root cause, just one of many causes that, long with protectionism and a severe drought, all came together to fuel the depression.

I'm also not sure I agree about your root cause of the depression. I was taught that the primary problems that caused and lengthened the depression were protectionism (Smoot-Hawley) and that there wasn't any money available period, not that money wasn't available at 5% instead of 8%.

My understanding is that too easy credit created this particular problem.

It wasn't the ease of obtaining the credit, it was that credit was given to people who couldn't pay it back, and securities backed by those loans were marked as being good investments when they were not.

Just like tech startups in the mid-90s, it wasn't the fact that people were investing so much money into them, it's the fact that people were investing in startups that weren't worth investing in.

By lowering interest rates, and the barrier to Freddie Mac/Fannie Mae mortgages, the Fed is trying to minimize the coming a housing surplus and a credit shortage which will effect the entire economy, not just those involved in the mortgages. The last thing we want in the economy is for people to stop buying the goods we're producing, that is part of what cause the Great Depression.

Anybody care to explain this to me?

Actually I was thinking more of the lengthy period in the early part of this century in which interest rates were kept very low. IMO that set the stage for current problems.

No doubt it played some part, but then they were trying to head of a recession after 9/11.

Although I understand the emergency first aid approach the Fed is using now, I’m skeptical that purely monetary measures will solve the problems that are out there.

Like all first aid, it's not meant to solve the problem, it's to keep the problem from getting worse until it can be solved. You're absolutely right that money alone won't fix things, but the things that will fix it are slow to get moving, and their effects take time to ripple through. In this case, the Fed is looking for a tourniquet until it can get a suture kit.

Their role is to try and mitigate the damage those speculators can do to our economy

Actually I was thinking more of the lengthy period in the early part of this century in which interest rates were kept very low. IMO that set the stage for current problems. Although I understand the emergency first aid approach the Fed is using now, I'm skeptical that purely monetary measures will solve the problems that are out there.

You wouldn’t sign a lease where your landlord could arbitrarily raise your rent whenever he felt like it.

Most rental agreements allow the landlord to raise your rent after a period of time, usually one or two years. It was my understanding that ARMs had similar periods where your rate was static.

Unfortunately, the new role of the Federal Reserve seems to be to underwrite the gambles of speculators.

Their role is to try and mitigate the damage those speculators can do to our economy. I think that the stimulus checks being sent out are a poorly though-out and highly political way of doing this, but adjusting interest rates to offset credit tightening in a recession would seem to be exactly what the Fed was designed to do.

If the gamblers were the only ones who would get burned, I'd say let them get burned. But if some fool sets his house on fire in your neighborhood, you don't say let it burn, because eventually it's going to burn the house of someone who wasn't foolish, quite possibly your own.

They're not an egregiously bad option for people who know they're not going to be living in the house they are buying when the adjustment comes due. Many federal workers (including military) are assigned to a location for a specified period of time (tour of duty, in other words). If they are certain that they'll be in the ARM-mortgaged house for only two years and the ARM doesn't kick in for three, then it's a good deal.

If they're wrong in their predictions, then they can certainly be stuck holding the bag.

In more stable housing markets and times, many go for the ARM to buy the house they want, then start immediately looking for a fixed-rate mortgage. ARMs are/were generally easier to get then traditional, 30-year fixed-rate mortgages, so getting one to get the house before it went to someone else could make sense.

There's assuredly some risk involved. But it needn't be the same as going on a gambling binge in Atlantic City or Reno.

Rent-seeking is a pretty darned good way, too.

The corollary is the path to financial ruin is to spend more than you earn.

It isn't rocket science. Even an economist can figure this out.