A+ in economics, I think the answer to your question is that responsible people (investing in company 401K, IRA's, etc., that was told it's safe, tax exempt, add to max it out, not to mention lack of oversight on these major corporations padding the books, the same corporations that give government officials the big bucks, while the average hard working responsible "Joe" ends up with no security) have lost trust in our government officials to safeguard their financial future. It's scary to the responsible "Joe", most are trying to secure what they have left.

That's exactly why we shouldn't rely on government officials to safeguard our financial future. Free enterprise is the solution. It is the economic equivalent of evolution.

Rich,

I agree that programs like the Community Reinvestment Act bastardized by groups such as the Obama friendly ACORN pushed home loans to folks who could not pay them. That is the crucial first step to the debacle, and contrary to what Obama may have said, it was Fannie Mae and Freddie Mac that became the starting point for the problem, and Obama was a huge beneficiary; the second largest number of any member in Congress at over $120,000. Ironically, Barny Frank's (D-Mass) lover at the time was a bigwig with Fannie Mae and orchestrated the scheme by which these loans would be perpetuated. Is this the reason he opposed recommendations to overhaul the system from McCain in 2005?

Also, don't forget that the same companies packaging these securities sold them as swaps to dodge regulation required for insurance. They were, in essence insured securities because groups like AIG packaged them with guarantees to back the security. In other words, if these fail, we have your investment protected. However, the same companies did not have the capital to cover the failed notes because they were not required to have the capital on-hand for a "swap". So when everything bottomed out on the securities, companies began to fold. Hence, the bailout.

Point well made and taken. However, do you think that there is a government solution to this?

If the government hadn't encouraged these risky loans, the problem wouldn't exist.

Also the insurance industry, much like all other kinds of gambling, is based on probability. Risk analysts for the AIGs of the world either didn't live up to their requirements of due dilligence or just couldn't conceive of all of these loans defaulting all at once.

Kitteric:

The basis of your argument is sound, however, you have failed to level any blame at the predatory lenders like Country Wide, among others, that sold ARMs to people that were unlikely to be able to afford the first or second bump in interest. These unscrupulous agents took the money and ran.

Additionally, if you saw any of the news covering the hearings in the House yesterday you would have been aware that AIG purposely hid assets from their own accounting department to hide their precarious condition, even the Fair and Balanced channel covered it. Please don't forget the obscene salaries and golden parachutes that the CEO's and senior officers of these firms were earning at the time. Failure to maintain the gravy train of sub-prime mortgages would have ended their compensation.

This crisis is multi-faceted. The Democrats, the Republicans, the poor and the greedy all played a significant role in the drama. Every politician currently serving in Washington, D.C. (and even all the way down to our little community) needs to be sent packing. There is too much guilt floating around for anyone to be innocent. If someone was aware and did nothing to stop this situation they are equally guilty.

Chapin, I agree with almost everything you say here. Certainly there were unscrupulous mortgage loan officers that were less than honest about the terms of loans, but to blame it on the corporation, in this case Countrywide, is more than I'm willing to do right now. If it can be shown that dishonesty in lending was institutionalized I would agree. If Countrywide encouraged their agents to mirepresent loan terms or trained them incorrectly, then there should be prosecution leveled at the responsible parties.

As far as AIG, I am disgusted. If it can be proven that AIG "cooked" their books, the company should be dismembered and sold off, with the responsible parties facing trial. If investors are lied to, fraud charges should be brought.

CEO salaries are trickier, I think that those should be handled by the companies and their investors. Clearly several boards of directors have been woefully incompetent.

I really believe that if a company hires a CEO with a contract that offers fantastic payouts and benefits, that's the company's own business. If that highly paid CEO drives the company into the ground, it is no one's fault but the directors of the company. Taxpayers should not have to rescue them.

It is utterly amazing to me that We, the People somehow expect to attract the best and brightest person to run for the office of the President. The CEO of the most powerful, free Nation and one of the largest corporations in the world. We expect someone to be willing to subject every aspect of their public and private lives to the most minute examination possible. We expect them to do our bidding, and they better do it correctly. We expect them to work harder than we would ever be willing to work. We expect them to not take excessive vacations (the entire month of August off comes to mind.) We expect them to answer the phone at 3:00 a.m. in a crisis and be clear headed when they do. All of this for the miserly direct compensation of $400,000 per year.

Yet, we as a society, think it is just fine to look the other way when CEOs, CFOs, and other executives in major corporations earn tens of millions per year in direct compensation. This is sometimes 400 times the earning power of the work force they are directing. Sports stars, movie stars and other entertainers (like Rush Limbaugh and Howard Stern) earn the same kind of compensation. Of course, this is free enterprise and capitalism at its best.

Corporations of today have little or no concern for their workforce. Their only concern is the bottom line and how much more they can squeeze out of the worker and consumer. This is evident in the fact that our major producers are McDonalds and Coca Cola. We have lost the edge on the production of steel, automobiles, electronics, textiles, the list is exhaustive. These American corporations are simply closing our factories and shipping the jobs to our neighboring countries. We are even allowing a foreign owned company to manufacture our next generation of military aerial refueling tankers (Airbus). If that were not enough our American corporations are "moving" their headquarters to offshore locations to avoid what little taxation they face.

kitteric you posted a blog in August decrying the raise in minimum wage as an economic debacle. But you failed to point out the more obvious fact. If this country does not produce anything, for either internal consumption or export to other countries we are doomed to failure. A service related economy can only carry a nation so far. By all means continue on in your support for the CEOs maybe they will allow you to polish their fine foreign made automobile one day!

Still somehow people are willing to spend tens of millions of dollars to get that $400,000 per year job. I'd say that there is much incentive beyond the salary.

Read Adam Smith's "The Wealth of Nations". By doing what is in a business's best interest, everyone benefits.

And if you want those companies to ever come back to the US, don't vote Obama. Obama wants to raise corporate taxes even more. This will just drive more jobs out of the country.

Would you put yourself out of business by spending twice what your competitors do to make a product that is of the same quality? We need to make it easy to do business here in the US, rather than giving companies an incentive to outsource overseas.

I will take your suggestion and pick up a copy of Adam Smith's book. Until then I think it is ludicrous to believe that it is conscionable to accept the fact that businesses are always right. I suppose by following the thought process that "a business's best interest, everyone benefits" justifies the recent rescue plan. Yet, had business been thinking of everyone and their included benefit would we have been put in the position to rescue them?

If the brokers at Country Wide put the customer first would they have sold them a ARM instead of a fixed rate they knew the customer could not afford?

If the executives at AIG had been honest with their own auditors would they have been compelled to hid the truth?

I am guessing that the greed of the common worker to earn a living wage, with affordable, decent healthcare caused all the business to run away from America!

I am guessing that there was no feasable way to pay a living wage to the little guy and still pay an obscene salary to an executive so you could get the best minds available!

I am guessing that illegal immigration is really the fault of the worker demanding that living wage (and not being willing to do back breaking, mind numbing work for 12 hours in a sun drenched field for next to nothing. Didn't the 13th amendment outlaw that?). That attitude gave the business owner the right to hire someone they knew to be illegal so they could pay them next to nothing. Talk about modern day slavery!

And by the way the majority of the people that are willing to spend tens of millions of dollars to get that $400,000 are not spending their money, instead they are spending other people's money including lobbiests.

Chapin, to give you a better idea of what I mean about letting companies do what is in their best interest please read this: http://www.econlib.org/library/Essays/rd...

It is an excellent essay on how the self interested actions of businesses are like ripples on a pond spreading prosperity.

I also feel obligated to reiterate that these mortgage companies would not have offered these risky loans if they did not feel forced into it by threats of litigation and racially charged smear campaigns.

Groups like ACORN virtually forced mortgage companies to give loans to people who were, statistically, unlikely to pay them off.

About illegal immigration, that is the fault of the criminals who cross illegally and our often inept government refusing to do anything meaningful about it. I also think that it is insulting to the memory of all who served as slaves to consider what the illegals do as slavery. True slaves did not choose to become so. They didn't line up just begging to be given the chance to work on the pyramids or pick cotton. Slaves were captured, tortured, forced to work, torn from their families. They didn't have access to health care or schools for their children. Illegals break the law and run the risk of being arrested and deported because they WANT to be here.

A word about PACs (lobbies); I won't pretend to know anything about you, but for the sake of argument lets say that you are worried about the state of the environment. Would you take off from work and try to arrange meetings with as many congresspersons that you could? Would you spend your nest egg funding research into your cause and try to get an audience with congress? or Would you join the Sierra Club and donate money to GreenPeace etc.

You see PACs do represent special interests, their members' and benefactors' special interests. It never ceases to amaze me how people only complain about "special interest groups" when they don't agree with their causes.

"http://www.econlib.org/library/Essays/rd..."
This was a wonderful explanation of the effects of the Invisible Hand theory. It provided a thoughtful breakdown of the interoperability of the economy. However, it did nothing to explain your previous assertion that “what is in a business's best interest, everyone benefits." There was nothing to explain the need for businesses to pay the least possible amount of money to any of the workers in the chain. There was nothing offered that explained the need to obscenely over compensate those at the very highest levels of a company. Please explain to me why a CEO should ever be paid 350 times that of the worker? IMO, that overarching greed and the utter contempt for any type of regulation of business is the crux of the current situation.

“I also feel obligated to reiterate that these mortgage companies would not have offered these risky loans if they did not feel forced into it by threats of litigation and racially charged smear campaigns." And yet they continued to act in what appears to at the very least a discriminatory fashion by aggressively selling ARMs to people that could barely afford a standard fixed rate product. But why should they care . . . the brokers got their bonus payments and of course their senior level officials got their golden parachutes. Now we are left holding the bag of empty promises they sold.

Are you mad at ACORN or the Community Reinvestment Act?

“About illegal immigration, that is the fault of the criminals who cross illegally and our often inept government refusing to do anything meaningful about it." No actually, it is the fault of the spineless and worthless employers that hire them to do the work. If these employers did not think they could get away with paying these people next to nothing they would not do it. These are employers that are not taking into consideration the damage they are inflicting on their own nation. I have said it before . . . vote every single elected official out of office now. Maybe we can break this selfish cycle of the bottom line before anything else mentality. Throughout history there have been people that willingly sold themselves into slavery; from the earliest days of the Roman Republic to the indentured servants of the Pre-American Revolutionary era on through to modern day illegal immigrants. And there have always been self centered governments and people ready to exploit them. So I was not impugning any specific group of people and their struggles (that continue today) related to slavery.

"A word about PACs (lobbies) . . . " There are good and bad versions of all things. But in all things moderation, I do not think that the ones you mentioned should have unfettered access to the halls of power anymore than I think those representing big business should. Limitations on all lobbying money need to be established.

My point about the invisible hand is this: There is nothing that these corporations could do with their money that wouldn't benefit thousands of others (short of removing the money from circulation, that is).

I have yet to see evidence of widespread misrepresentation by mortgage companies. People are responsible for their own actions. I'm sorry if they thought that the housing market only ever went up, but that is their problem. Their unwise decisions should not cost me money. In accordance with their responsibility to their investors, mortgage companies had to charge higher interest rates to cover the probability of non payment.

At its inception CRA was terrible, ACORN made it worse. They extorted lenders into offering loans to ineligible borrowers. So to answer your question, I do not like either the CRA or ACORN.

Regarding illegal immigrants, I agree that employers are to blame but the government does share in the responsibility for letting things get so out of control.

About lobbies, instead of regulating them maybe we should keep a closer eye on our representatives and hold them to a standard that is above bribery. Lets make it very unattractive for politicians to trade their influence for gifts and money.

I can not see anything that leads me to believe that corporations, left unfettered to behave only in the interests of their share holders, care about the benefit of others. Exxon Mobil certainly has enjoyed the run up in oil prices haven't they? Where is their concern for the benefit of others?

I can not believe that we are in the housing mess we are in simply because of mortgages sold to unworthy investors. I have never heard of ACORN until this week. How could they be so powerful, so pervasive in the lives of minorities, the scourge of the entire mortgage industry and yet stay so far under the radar?

Surprisingly we tend to agree on the last two points regarding illegal immigration and lobbies.