Mark my words, money like water, has to go somewhere. If the day after the election, the Stock Market soars to 14000 in support of the “new order” then you will know that this election has been bought and paid for. And that we Americans are the losers.

Mid: what, no deer?

but at the cost of limiting the extent of effect possible.

I should have said “at the cost of limiting the extent of manipulation possible.”

Given a choice between behaving responsibly or having power, pols always chose more power. At 100% fractional reserve they would have total stability but no power. The power would then be entirely in the hands of the depositors. Which is where it should have been all along.

So in a way, you’re both right. It is like playing reverse musical chairs. Instead of removing chairs from the game, the Fed kept adding players (dollars). When the music stops, there aren’t enough ‘ass sets’ (err, chairs) for all the asses. This isn’t really a lending issue so much as an investment issue.

I won’t get into it here, but the money multiplier effect is how Fed policy controls money supply. The actual contribution of the national debt to money supply is secondary. Manipulating interest manipulates lending manipulates money supply. The size of the fraction in ‘fractional reserve’ controls how finely the Fed can control money supply (bigger fraction = more control) but at the cost of limiting the extent of effect possible. Believe it or not, at 10%, the US is conservative compared to Yurp.

OT, I woke up to shotgun cannonades this morning. I guess it’s goose season.

It says here:

With the creation of central banks, currency underwent several significant changes. During both the coinage and credit money eras the number of entities which had the ability to coin or print money was quite large. One could, literally, have “a license to print money”; many nobles had the right of coinage. Royal colonial companies, such as the Massachusetts Bay Company or the British East India Company could issue notes of credit—money backed by the promise to pay later, or exchangeable for payments owed to the company itself. This led to continual instability of the value of money. The exposure of coins to debasement and shaving, however, presented the same problem in another form: with each pair of hands a coin passed through, its value grew less.

The solution which evolved beginning in the late 18th century and through the 19th century was the creation of a central monetary authority which had a virtual monopoly on issuing currency, and whose notes had to be accepted for “all debts public and private”.

I wonder how much the part that I emphasized in bold was really a problem, and if it was, what solutions could have been applied other than monopoly by the state.

the situation wouldn’t be nearly so bad

Maybe not in the shorter term. I think it would have taken the bubble longer (maybe much longer) to form, but it would have been much larger. Fewer people would have noticed anything along the way, and the inevitable explosion would have been much more powerful and disastrous.

subtract any one of these factors and the situation wouldn’t be nearly so bad IMHO.

This is my main point, and this is what I doubt, although I could certainly be wrong. When you pour money into the system, it has to go somewhere. My background is in physics, so I think of it as of connected vessels rule. And, of course, I agree with you on the herd behavior, but I think it is beside the point, as it is part of human nature, and as such has to be treated as a given in any market.

The only thing I can think of is either LTV <80% or interest rates sufficiently high that, if you take a bunch of subprime loans together and subtract the defaults you’re still getting the same return as you would from loaning the money to people who pay you back.

Alisa,
I’d say that the regulation involved is non-trivial. CRA-mandated loans to the non-creditworthy to avoid getting calls from ACORN lawyers might be a small percentage. However, the people who took those loans bought houses, which increased demand, which fueled the price increases that led bankers and real estate agents to tell other people that prices would continue to climb.

Meaning: subtract any one of these factors and the situation wouldn’t be nearly so bad IMHO. They fed off each other. Idiot debtors, idiot creditors, real estate people, etc. are behaving like a psychological crowd and the ordinary rules of logic applied to human behavior[1] don’t apply, but there is a logic to this crowd behavior.

(So that anybody who insists that there are only individuals, and that there’s no difference in behavior just because there are a few dozen of them interacting: you’re full of it. They may have the same moral responsibility for their actions as they did as individuals, but the behavior is very different.)

[1] Someone is saying “I never thought I’d ever hear a cop say that human behavior is logical.” What I’d learned in school was that you can change the conclusions that people reach through strict logic, by changing the premises they start with. Which is what I think Perry and others mean when they talk about “building the…metacontext.” The difference being that he, and I, and most others here are trying to shift the premises back to something to accurately describes the world as it actually is.

This is a very insightful remark. It recognizes that capitalism requires a moral defense, not merely an economic one. Of course, Ayn Rand realized this decades ago, and the folks at ARI (aynrand.org) continue to drive home this point to any libertarian and conservative would-be defenders of capitalism who will listen.

From the leftist POV, the CRA (and other like initiatives) was a brilliant plan. If it worked they got a degree of “fairness”. If it didn’t work, they got the “fairness” we’re headed for now.

If this debacle (whatever its ‘root’ cause) was not contrived and orchestrated by the left, they must surely be upset for not thinking of it sooner and implementing it themselves.

Rather than looking backward, the question now should be, what new disaster will be foisted off on us as the solution to the current mess? A single world currency? A world government? Abandonment of private property rights? The mind boggles at the many opportunities now opening for leftist mischief.

“And so the search continues, for a simple (preferably single) explanation for the current banking disaster.”

Good luck with that. Some of us were never searching. In fact, we knew the banking/stock market disaster was coming. It’s pretty obvious what the causes are and that the explanation isn’t simple.

If it was simple then everyone would have realized before the fact.

I hope I didn’t misinterpret your comment. It’s possible you were being sarcastic but I’m not familar with you so I can’t tell.