Hi Beverly, The root cause for the mortgage crisis was based in the assumption by some on Wall St. that property values on the whole would rise in the US. There was some evidence supporting this supposition, as there was no time since the Depression that the entire country suffered declining mortgage values. Using this premise, Wall St. securitized loans, packaged them and sold them as AAA (highest rating). Lenders, accepting the premise that we enjoyed constantly rising housing prices, began to lower their underwriting standards. If the prices are always rising, why require 20% down? As competition for loans increased, lenders also offered “no doc” loans, which meant that they’d believe whatever you said on the application. If you said you earned $80k, they believed you. Finally, lenders offered adjustable rate loans that began with a lower rate and adjusted to market rates after a period of time. Consequently, borrowers could put no money down, say they earned twice what they did, and get a low, affordable interest rate because -why not? If they couldn’t afford the payments, they could just sell the house at a profit. After all, property prices would rise. The problem was, with so many people applying for these loans, housing prices were pushed up by inordinate demand. That rise was unsustainable, and the inevitable happened. So the lenders made the loans, Wall St securitized them and sold them, and everybody was happily buying real estate that was priced too high thinking they could sell it to someone else if they got into trouble. Now we’re paying the price - like we paid the price for Internet stocks that were bid up to ridiculous levels. And like the stock market correction in 2001, we’ll suffer some losses until prices stabilize.

Hi Jennifer, With respect to the S&L crisis, the problem was primarily due improper deregulation; i.e., the liability side (deposits) of the business was deregulated, but the assets (loans) were not. Consequently, thrifts were paying more for deposits than they were earning for loans - a recipe for bankruptcy. Both sides of the industry had to be deregulated in order that the industry could survive.

Hi Diana, I’ve been on the phone will some of my friends/colleagues in the banking industry this evening. It appears relatively certain that Merrill Lynch will be purchased by BofA, and Lehman Brothers has failed to find a buyer, and is filing for Chapter 11. Securities are insured by SIPC, and the market will certainly open down, but in an orderly manner. While this is certainly unsettling news, it should be put into proper perspective. The fact that Lehman Brothers is facing bankruptcy shows that moral hazard remains intact within our financial system, and that is positive. What that means is that companies that take extraordinary risk face the possibility of bankruptcy - not bailout. This helps maintain the integrity of the investment banking tenet of risk/reward. A perfect storm? It is true that securitization of sub-prime loans and the resulting demand-push in housing prices created a bubble which will take some time to unwind. Housing prices will fall until demand places a floor under them, and mortgage derivatives will take time to find transparency, and resulting price stability. But, in perspective, this appears to be no worse the the savings and loan crisis (caused by the deregulation of the liability but not the asset side of the thrift industry). As with Long Term Capital Management, the underlying cause here is primarily the complexity of mortgage securities coupled with lax underwriting standards based in the assumption that US housing prices would constantly rise. The financial system in this country is strong, is intact and the Fed will be accepting equities as collateral for loans to stabilize the markets at the open as a measure to create confidence. Certainly this increases the probability of a US recession, but most economists (including Greenspan) rate that proability in the vicinity of 50%, and continue to see good long term prospects for the US economy.

Hi MaryPage, #4. Tax receipts are up because the tax rates are lower. These are tax receipts (in billions) from 2000 – April, 2008. 2000-01-01 2035.7 2000-04-01 2044.9 2000-07-01 2066.8 2000-10-01 2068.0 2001-01-01 2089.2 2001-04-01 2080.5 2001-07-01 1895.4 2001-10-01 1999.6 2002-01-01 1845.9 2002-04-01 1854.1 2002-07-01 1856.1 2002-10-01 1856.6 2003-01-01 1888.9 2003-04-01 1903.3 2003-07-01 1817.3 2003-10-01 1910.2 2004-01-01 1939.5 2004-04-01 1989.7 2004-07-01 2023.5 2004-10-01 2082.8 2005-01-01 2225.7 2005-04-01 2264.1 2005-07-01 2214.5 2005-10-01 2363.3 2006-01-01 2453.6 2006-04-01 2487.6 2006-07-01 2531.9 2006-10-01 2568.6 2007-01-01 2612.8 2007-04-01 2648.1 2007-07-01 2664.9 2007-10-01 2679.2 2008-01-01 2672.5 2008-04-01 2491.0 Attributing growth in tax receipts to lower tax rates is questionable, as the statistical similarity is more significant to growth in Gross Domestic Product than tax rates. #5. The recession GW Bush inherited from the Clinton administration was overcome. There was a recession in 2001 – 2002. Statistics other than real GDP indicate that the problems for the economy developed in the summer of 2000, so the hypothesis that it was inherited from the Clinton administration is valid.

Hi Bonita, I hear what you are saying. The fact is, though, that the strategy of the Republican party is effective, and if you support the Democratic ticket, it’s time for an effective counter strategy. Taking moral high ground isn’t working, in my opinion. Winning is the goal for both parties, and it appears that the Democrats have allowed their message to be sidelined in favor of, as you so aptly put it, “fish/pig/lipstick stuff.”

Hi Bonnie, We owe China $501 billion. See Liz Peek’s Friday column for information as to the awarding of oil drilling project in Iraq to China - 4 bids from which oil companies owned or affiliated with the US were blocked by four Democratic Senators. See comparison of health care policies at http://www.taxpolicycenter.org/UploadedPDF/411749_updated_candidates.pdf Unlike Senator Clinton’s policy, neither candidate provides full coverage for every American. Neither party has much to brag about, from my point of view.

Hi Sherrie, If it is me that you were referring to with respect to economics, I am not trying to “sell” you anything. I am providing an analysis by two well respected (Brookings Institution and Urban Institute) non-partisan think tanks that compare the economic agenda of both candidates. It has been updated as of 9/2/08, and includes policy statements, candidate statements and senior advisor statements from both Senators Obama and McCain http://www.taxpolicycenter.org/UploadedPDF/411749_updated_candidates.pdf There is nothing in this study that reflects anything about Bush other than the current budget projections, from which both candidates base their projections. If you look through all my posts on this site, I have been consistently independent, and if anything, slightly favor a more liberal agenda. I will not accept your inaccurate characterization of my opinions, and ask that if you want to discuss facts, stick to them.

Here’s a documentary non-partisan film that explores the current state of American politics Split: A Divided America scheduled to play on the Independent Film Channel Tuesday, Sep. 16 at 11:40 AM EDT Monday, Sep. 22 at 8:30 AM EDT 2008 | 78 min. | Director: Kelly Nyks | In an era where partisan politics seems to have split America right down the middle and political debate can grow so heated that most folks choose to avoid the topic altogether, filmmaker Kelly Nyks travels from coast to coast in order to find out why political discourse regarding public affairs has become so disconnected. What does it mean for the future of our country when we can’t even discuss our political differences in a civil manner anymore, and who has the authority to say what’s truly “right” or “wrong” anyway when it comes to such hot button issues as abortion and gay marriage. In the run-up to the November, 2008 presidential elections, Nyks attempts to answer all of these questions and more by interviewing such noted political commentators as Tucker Carlson, Noam Chomsky, Jesse Jackson, and Robert Putnam, and engaging people all across the country in a constructive dialogue about politics in general, and the potentially destructive effects that political partisanship has had on American society as a whole.

The fact is McCain is ahead in the polls. The fact is that he has moved from a distant second to a decided first. That move cannot be explained by the expected bounce after the national convention. Whether it is cynical, whether it is fair, whether he best represents any particular point of view, and questioning the accuracy of poll data are not the pertinent issues. McCain has taken a decided lead, and taking a stand on moral high ground is not an effective response to challenging that lead. If the Obama campaign does not make an effective, strategic change in his campaign, he will lose this election. It is to that end, in my opinion, that his supporters must focus their efforts. If Obama and his supporters allow themselves to be sidelined with tertiary issues and lose focus on the goal - winning - it will cost them this election.

I’m sure Mr Kitty would be very fond of you, too, Phyllis. He likes smart cookies.

Duchess?

Hi Duchess, Please zap this user http://www.wowowow.com/user/16239 After Liz’s column last week with respect to knock-off manufacturers supporting terrorist causes, this is particularly disturbing. Bad Lucy!

Duchess?

Thanks for your opinion, Marjorie.

Thanks, Penny.