To be clear, I tend to agree in large part with all of you. In fact, I think the president and congress (while both sharing some blame as to how bad the ultimate downturns end up being) deserve only a small portion of the blame. I tend to think the Austrian School of economics (
http://en.wikipedia.org/wiki/Austrian_S ... _economics) - see Hayek, von Mises, Rothbard, etc... - has the best approach to things, though Prechter's Socionomics theories (
http://en.wikipedia.org/wiki/Socionomics) are intriguing.
The basic idea is that the economy and the health of society is determined by "social mood." When the overall mood is optimistic, people are more inclined to spend, invest, and generally be productive. When mood turns negative, people are less likely to invest or buy things. When mood reaches a major bottom, wars break out and politicians don't get re-elected (and sometimes get impeached). The stock market is one of the most sensitive measures of social mood. If you put up a plot of the stock market (measured by the major stock indices), you'll find that major wars tend to occur shortly after bottoms in the stock market. Presidents almost always fail to win re-election during major market downturns. Also, the most ground-breaking horror films tend to come out during major market down-turns. (Frankenstein, Dracula, and others came out in the 1930s in the middle of the great depression; the 1940s-1960s bull market saw horror films that were almost more comedic than anything; the long-lasting recession from the late 1960s through early 1980s created a new concept in horror films with Night of the Living Dead, Rosemary's Baby, Texas Chainsaw Massacre, and so on; the market downturn in the late 1980s corresponded with the release of Nightmare on Elm Street, Halloween, and Friday the 13th; and the market declines since the year 2000 have been accompanied by a bumper crop of new horror films, such as Saw, Hostel, and so forth, as well as a number of sub-genres including vampire flicks.)
Overall it fits pretty well with Hayek's proposal that consumers and governments tend to binge during good economic times, creating a market bubble of some sort. This eventually implodes and is followed by a downturn of some duration. The Keynesian attempts to use Government policy to smooth out the boom and bust cycles only end up planting the seeds for the next cycle.
Anyway, I typed far more on this than I planned to do right now. More than anything I just wanted to voice my frustrations about how much Bush is being scapegoated right now for all that is wrong in this country. Certainly Bush did the wrong thing in quite a number of areas, as did the Republicans controlling congress for much of that time (how do people that espouse "small government" manage to increase the size of it by 50% in 7 years???). And honestly, I think that the various government regulation (and lack thereof) also played only a minor role. The huge expansion of credit and the FED telling banks that they would no longer enforce any minimum on their monetary reserves was a major player in what's happening now. When that happened, a bank was able to create money out of thin air: If you deposit $1000 in the bank, you think you have $1000. But the bank loans it out to someone else. He spend that $1000 purchasing some item. The seller thinks he has $1000 and goes and deposits it in the bank, who then thinks they have $2000 in deposits, plus another $1000 owed to them on that loan. Then the Government steps in again and encourages banks to ensure lower income families are able to get housing loans. Since those are pretty risky loans, the banks attach high interest rates, fees, and other means of recouping their money when the people become unable to repay the money. The additional demand for housing causes prices to start to climb, and investors see an opportunity. Banks that are now flush with money are more than happy to loan it all out. Suddenly housing prices stop rising. Investors are stuck with multiple properties that they hadn't intended to keep more than a month or two (I saw this all over the place in Florida, and I know it happened elsewhere in the country). They don't have the money to pay for the properties, so they default on the loans. They go back to their other banks and try to withdraw money that they had deposited, but all of a sudden those banks realize they've loaned it all out, and the collateral is now worth half of the amount they loaned. And the house of cards starts to collapse.
Who is at fault? The Government for not regulating? They were regulating - it's just that the behavior they encouraged was not beneficial for the economy. The banks for making all these foolish loans? They were doing what the Government encouraged them to do, what their stock holders demanded, and what the consumers begged from them. How about the consumers for taking on loans that they couldn't afford? But the banks and the financial advisers were all talking about how this was a fantastic opportunity, and many of them weren't prepared to dig through and really contemplate what they were getting themselves into.
How about the investors that went around short-selling the market? The problem is that for every person wanting to sell a share of stock there has to be a corresponding buyer. In fact, it's very difficult to sell short when the market is moving downwards - there's no one there to buy! Furthermore, the market makers have to be able to sell short in order to keep action going on the stock. If you go out and put $3000 into a stock at around $22 per share, do you think your broker managed to find another broker that was willing to sell you your 138 shares at $21.74 per share? Not at all. He buys shares from the market maker, who has borrowed shares from someone that already owns the stock. At that point he commits to trying to buy back 138 shares from someone else so he can return the shares (much like when you deposit money in the bank and the bank lends it out with the promise to make sure it's available again when you come back and ask for it). Ideally, he'll try to buy shares at a slight lower price - maybe $21.68, which is where he makes his profits. That's also why when you look at a stock price there is a bid price and an ask price with a fairly small difference between the two. The market maker commits to those prices and will sell to you at a slightly higher price than what he will buy from you.
Anyway, I'm not sure that we can really put a majority share of the blame on any one person or group. Personally I think that it's simply an indication that the mood of the global society has started turn more and more pessimistic since around the year 2000. Unfortunately, I don't think we're anywhere close to the bottom. I'm willing to state here and now that I think the market will decline 50% or more before the end of the 2010. I doubt we'll see the ultimate bottom of this bear market until around 2015 (give or take a year or two). After that we'll probably have a few decades (maybe as many as 100 years) of growth and recovery, which will return us roughly to the year 2000 top before the market turns down in earnest once again. That downturn will ultimately be worse than this one, and if I'm still around at that time, I wouldn't be surprised to see this country break up into a few pieces (not unlike what the authors of the Fractured America map have envisioned, I just think they're a few decades early).
Ok. This is now way more than I planned to say. Ultimately I think the best thing we can do is quit complaining about what's already been done and stop trying to push the blame onto this person or that. We just need to recognize where we are and what's going on and try to figure out how to make it through whatever comes next.
