I do think the market "failed" here. It failed in that people didn't not correctly anticipate the risks involved, at least in part. Part of it, I would contend, is that people also figured the government would cover part of that risk as well.

The market is political as well as economic, and we've been in a "boom and bailout" cycle for at least a generation. Where the market may have gone wrong was in the assumption that you can always transfer your losses (if they are big enough) to the government. And it may turn out they were right...

The salesman doesn't have the power of government behind him, enforcing that everyone buys, which was the situation in the case of the CRA.

Neither does the government, in this case. The government didn't force any bank to make any loan, the bank had discretion.

Because it was peripheral to the point I was making.

Actually it is why you'll have more and more of these crises if you bail these guys out.

Yes not bailing them out will hurt. Alot. But so will bailing them out. It will hurt too. $1 trillion dollars worth of hurt. Take out all the money you have in the bank, take one out of every $14 and tear it up. That is the pain we are talking about with this bail out. If that sounds like a bad idea...well then there you go.

Where we do appear to disagree you have not commented. I see removal of specific regulations and allowing ridiculous levels of leveraging as the primary reason for the size of the mess (by orders of magnitude). Do you disagree? I know you think that the expectation of the bailout was a primary cause, but minus the deregulation and over leveraging would it be such a big problem?

I think it is more a problem of transparency than anything. Hidden information or information that isn't widely available. It is well known in economics circles that these things can lead to all sorts of problems.

As for the current mess it has lots of contributing factors, one of which was a potential bailout. Another are bad incentives in terms of bonuses and pay for Wall Street. Another was changing the rules of the game without, or as you might call it deregualtion. Changing the rules is always risky. Then there was the government sponsored entities Fannie Mae and Freddie Mac who were very nearly at the center of alot of this sub-prime mess.

That line of thought runs directly counter to your it's all/mostly the guv'mints fault argument for the bailout.

You're missing something kinda crucial. The salesman doesn't have the power of government behind him, enforcing that everyone buys, which was the situation in the case of the CRA.

Utter nonsense. People are trying to sell me stuff every time I turn on the radio or TV. Does that mean that I'm covered, and don't ahve to take any responsibility for taking them up on their offer?

If the product you buy doesn't live up to what they were advertising, then yes you are absolved of responsibility (or at least the responsibility is shared with the salesman). That is why the second part absolutely is required, because either Davis was selling them what they bought, or he was selling them something different. If the former he is as responsible as the lawmakers, if the latter is he absolved.

They ran headlong off a cliff. That's stupid...why its suicide. Why should the guys who didn't run headlong off the cliff have to risk their necks trying to help the idiots?

The problem is that those idiots are tied to one end of a rope, and we're tied to the other. We either pull them back up (bailout), go down with them (collapse), or find a way to sever the rope (???).

Okay, so we shouldn't bail them out then? That sure seems to be the logical conclusion from this.

At this point I am still not certain. I would prefer that we not bail them out, but every economist I have read that has spoken on this seems to think that not doing it would be worse. I am still unconvinced, but think that if there is going to be a bailout it should be well thought out rather than a blind give away like Paulson's plan.

Why should the guys who didn't run headlong off the cliff have to risk their necks trying to help the idiots?

Perhaps because they are connected and if the big ones go over the rest will be pulled over with them. Again, I am not convinced but this seems to be the prevailing wisdom.

By the way Grewgills, you have completely ignored the moral hazard problem.

Because it was peripheral to the point I was making.

You really think it is okay to make good risks and the resulting profits private and the bad risk and resulting losses public?

No. My initial argument did not address this directly but the tone I thought made this obvious. We appear to be mostly of the same mind on this. Are you just arguing with me out of habit?
Where we do appear to disagree you have not commented. I see removal of specific regulations and allowing ridiculous levels of leveraging as the primary reason for the size of the mess (by orders of magnitude). Do you disagree? I know you think that the expectation of the bailout was a primary cause, but minus the deregulation and over leveraging would it be such a big problem?

Utter nonsense. People are trying to sell me stuff every time I turn on the radio or TV. Does that mean that I'm covered, and don't ahve to take any responsibility for taking them up on their offer?

That line of thought runs directly counter to your it's all/mostly the guv'mints fault argument for the bailout.

Not required to defeat the argument.

Depends on which argument you are talking about. If it is the relative ties and culpability of the candidates to this failure it does. One of the prime salesmen of the legislation you blame for this problem is running McCain's campaign. If you disagree so whole heartedly with the legislation why do you support the salesman of that legislation advising your candidate? Do you think he is giving McCain better economic advice than he gave congress? If so, why?

And given their transgression was they trusted government,

No. Just because I give you the rope does not make it my fault if you hang yourself with it particularly if you continuously lobby me for more rope.

They ran headlong off a cliff. That's stupid...why its suicide. Why should the guys who didn't run headlong off the cliff have to risk their necks trying to help the idiots?

And given their transgression was they trusted government, who gets the blame here?

As for those who didn't run off the cliff, to whom, exactly do you refer?

If Davis was the salesman, then was as instrumental in you buying the car as you were.

Utter nonsense. People are trying to sell me stuff every time I turn on the radio or TV. Does that mean that I'm covered, and don't ahve to take any responsibility for taking them up on their offer?

Now, if you want to argue that the legislation Davis pushed was different than the legislation that was written

Not required to defeat the argument.

Government may have helped point them the wrong way, but Bear Stearns et al chose to run headlong off the cliff. If you are going to argue that this is the fault of government then what standard do you hold for personal or corporate responsibility?

Okay, so we shouldn't bail them out then? That sure seems to be the logical conclusion from this.

They ran headlong off a cliff. That's stupid...why its suicide. Why should the guys who didn't run headlong off the cliff have to risk their necks trying to help the idiots?

By the way Grewgills, you have completely ignored the moral hazard problem. You really think it is okay to make good risks and the resulting profits private and the bad risk and resulting losses public? Good way to ruin the economy.

If you by a new truck beause you like it's looks, but it doesn't fit your needs do you blame the salesman?

Similarly, Those writing the legislation bear direct reposnibility, not the salesman.

Your analogy back-fires, Bithead. If Davis was the salesman, then was as instrumental in you buying the car as you were. If the salesman claimed that the truck was fuel-efficient while hauling 10 tons, but it explodes the first time you try it, the salesman is as much at fault as you are.

Moreover, it would be odd for you to hire that salesman to run your campaign, while at the same time blaming salespeople for selling people exploding trucks.

Now, if you want to argue that the legislation Davis pushed was different than the legislation that was written, I would welcome the details on the difference.

Similarly, Those writing the legislation bear direct reposnibility, not the salesman.

But this misses the point of the thing, which is that the goals got fouled up in the tacitics. Increasing home ownership by minorities is a markedly different thing than the goal set by re-writing lending rules based on skin color. this is a discussion we've had before, where the goal of equality of opportunity gets twisted into equality of outcome... a bit of confusion liberals are particularly prone to.

You do know that there's a difference between pushing for minority home ownership and re-wrting lending laws to force banks to loan to people with bad credit, right?

Tell us, Bithead, what exactly is the difference between writing that legislation, and lobbying for the writing of that legislation?

Sorry, Wingnuts: McCain's Campaign Manager Pushed For Boost In Minority Homeownership

You do know that there's a difference between pushing for minority home ownership and re-wrting lending laws to force banks to loan to people with bad credit, right?

Or are you really saying that minorities are deadbeats, invariably?