First, let me say my condolences for being dependent on auto right now. I came out of college into the steel industry in 1981-1982 when it soon was flat damn on its back. Ugly.

But my comment stands. The country still has sound fundamentals, and unless those fundamentals are destroyed, we will be fine. (A heavy dose of increased tax burden, regulatory burden and wasteful green legislation and wasteful bailout would do the trick, but I digress.) Business cycles and asset bubbles simply do happen. This current cycle is just another one. All estimates I have seen for the current recession do not even have the unemployment rate breaching the 10%+ of 1982......yet somehow we survived then.

I understand the politics of blaming GWB for everything, that's fine. But its just BS. Bill Clinton bequeathed a bursting dot.com bubble and a crashing equity market to GWB. But we don't acknowledge that. ("We" being the popular press, which means the general population, your sophisticated dinner party mates notwithstanding.) Look at the top to bottom of the broad based Wilshire 5000. 35% down. Ugly. Thanks, Bill.

Further, the current housing bubble bust has its roots in long term easy credit, CRA, and a 1990's HUD that went berserk pushing leftist social policy. You can throw in derivatives if you like, but even that financial tool predates Bush's watch. Further, the 2003 regulatory reforms Bush sponsored were vociferously shouted down with claims of elitism and racism by the likes of Chris Dodd, Barney Frank, Maxine Walters etc. As I've said before, the C-Span tapes are readily available if you want to watch that spectacle. I don't think that was a mirage I saw as Dem after Dem excoriated the regulators.

Blaming things on Bush is nice for the barber shop, sewing circle and dinner parties. But if one's interest is truly understanding the economic, regulatory and political policy mistakes made you have quite a different conversation than the simplistic "Bush is an idiot and provided poor stewardship."

People going down that path need to use the word 'idiot' carefully.

The "Great Depression" surprised people, not by how sharp the contraction was, but by how long it lasted--13+ years. Every one of the nine prior US "Banking Panics" had lasted only from six to eleven months.

The 1921 contraction, which washed $50 billion out of the economy to pay for World War One, only lasted nine months. A similarly sized Monetary Inflation, to prop up the British Pound after the war by the New York Federal Reserve Bank, caused the '29 crash.

The difference, between the '21 and the '29 crashes, was that President Hoover was an interventionist who stepped in to prop up wages and prices. This caused unemployment to reach 18.7% by 1932. He also closed down a third of the banks by 1931 causing a liquidity crisis.

FDR continued Hoover's interventions and added ones of his own. His unemployment figures reached 24.9% by 1937. He vastly increased the power of the Trade Unions and cartelized American businesses. Also, the Smoot/ Hawley Tariff Act shut down world trade as other countries retaliated to our trade barriers.

Is President Obama likely to intervene in the economy as much as Hoover, or even George W. Bush? Yes, that is so. Every intervention will delay recovery. Moreover, as the length of the recession extends, this will undermine the other structural flaws in our system: Social Security, Medicare and pensions. As the economy shrinks, its ability to pay for our huge government will vanish.

If Obama increases taxes, or if he allows the Bush Tax Cuts to phase out in 2010, he will learn that America is on the wrong side of the Laffer Curve where any tax rate INCREASE will produce a tax revenue DECREASE because it destroys the incentives to be in business. Many small business owners will sit out this recession. Unfortunately, when they do, the people they employ will lose their jobs--20 to 25% of the labor force.

Obama will be forced to the printing press to pay for his programs, causing high price inflation. His advisors are Keynesians or interventionists. They believe there are no consequences for increasing the money supply. They will learn that this is not so.

Currently, this recession is worse in the rest of the world, than here. Oil is likely to drop below $30 a barrel. Most of the Muslim tyrannies need oil to be two to three times that to pay for their welfare states. Civil unrest and a lack of world liquidity is a breeding ground for revolution and war, but much of this depends on the incoming US administration. Countries in high stress often go to war to divert attention from revolution.

Many people will be blaming this contraction on America. I've already seen this contention in print in France.

OK, explain how a ZIRP is not desperate. How many times have we resorted to it here in the US?

Never, but we came close last recession and Japan has used it before. It isn't the end of the world though as some might have us think. I'll get really worried when we have ZIRP and deflation.

Although it wasn't *just* that. We would have had the wreckage without the bailout. Profit by bankruptcy depends on getting yours and getting out while the getting is good. Bailouts are about mitigating damage (or not). They by themselves say nothing about clawbacks etc.

Sorry you are wrong. The government has demonstrated at least twice before that it will step in and bailout companies/guarnatee deposits, insurance plans, pensions, etc.:

Chrysler,
S&L Crisis.

The latter, the S&L crisis was the U.S. example noted specifically by Akerlof and Romer. They also looked at banking crises in other countries as well.

While we can point to the introduction of new financial instruments and changing the rules of the game (lets not call it deregulation please) as contributing factors, the problems we see today are also due, in significant part, to government's willingness to guarantee/bailout firms.

Oh and add the airlines immediately after 9/11 to the list of bailouts.

The author of that blog completely missed the obvious. It wasn't investment firms going public. It was the government's willingness to step in and bail these guys out.

Although it wasn't *just* that. We would have had the wreckage without the bailout. Profit by bankruptcy depends on getting yours and getting out while the getting is good. Bailouts are about mitigating damage (or not). They by themselves say nothing about clawbacks etc.

Tell me again about my "chops" Odograph.

OK, explain how a ZIRP is not desperate. How many times have we resorted to it here in the US?

If by "basically good shape" you mean that we still have a moderate regulated capitalism, that might be true ... but "good shape" would probably not include the desperation implied by the ZIRP.

We are in the middle of a bad recession, please don't over dramatize the situation.

"Free markets" were believed to be self-correcting, even as crony capitalism allowed large scale looting.

Only problem is the situation Akerlof and Romer describe is not a free market. Let me point to some key indicators that Akerlof and Romer gave you,

Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values...

Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government guarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses....

Which is pretty much the entire quote from Akerlof and Romer. It isn't the market that ist he problem here, but the government bailouts, the notion of too big to fail, and so forth. It sets up a system of perverse incentives you'd not find in a market without such government guarantees.

The author of that blog completely missed the obvious. It wasn't investment firms going public. It was the government's willingness to step in and bail these guys out.

Bush's SEC let Madoff walk

IIRC, the SEC under both Bush and Clinton gave Madoff a pass. It isn't like Madoff started up as soon as Bush got in office.

By the way, the Akerlof and Romer argument is one I've been making for awhile here. I've argued that a bailout is bad becuase it simply reinforces the belief that when the fit hits the shan, the government will bail out those "too big to fail firms" thus setting us up for the next round of a financial crisis down the road.

Tell me again about my "chops" Odograph.

You know, "crony capitalism" is something we used to hear from the crazed left ... until it REALLY happened.

"Free markets" were believed to be self-correcting, even as crony capitalism allowed large scale looting.

Weren't some of us talking about the Enroning of America a few years ago?

Our country is basically in sound shape. I understand the politics of painting GWB as the devil, but that is just juvenile BS. The "financial crisis" will be resolved. And in fact, liberal policies will ultimately be judged the cause. Can we reverse the near term misguided policy reactions......I don't know. There is probably a near term (next 10 years) hit.

If by "basically good shape" you mean that we still have a moderate regulated capitalism, that might be true ... but "good shape" would probably not include the desperation implied by the ZIRP.

Maybe there is some middle ground where GWB isn't the devil, but just a bad captain of a ship off course. Now we are almost literally running all pumps to stay afloat.

(I'm working basically in the auto business right now, and it's pretty ugly across the board.)

"Dawn of Correction"

I understand the politics of painting GWB as the devil, but that is just juvenile BS.

And your painting Obama as the devil before he has even taken office is not?

I see...

The words are by Sheldon Harnick. Yeah, the same guy who was the lyricist for Fiddler on the Roof.

The Trio used material from a wide variety of writers. Dave Guard found all kinds of cool stuff. (Scotch & Soda is credited to Tom Seaver's parents, though they learned it from a now unknown pianist in Reno). The Trio and Harry Belafonte were doing world music long before it was a recognized concept.

The Trio started to get more original material when John Stewart joined the group after Guard's departure.

Steve, I largely agree with you (I do not think this is 1929 revisited), but 3 months ago, John McCain was still saying "The fundamentals of the economy are sound." which we now know to be false.

Couple of things, 3 months ago nobody was sure we were in a recession. It was likely, but nobody was sure. A politician affiliated with the current party in power is going to say that because bad economic news is bad for the party in power. So I'm not terribly impressed by this.

Make it three things, I don't see that simply because John McCain says something it has to be the general consensus. For sometime I've been pessimistic on the economy and taking heat from those on the right, FWIW.