> i ignored you because, as i already mentioned, I'm not disagreeing about
> your general points.
Then why, when asking your questions, did you only include two strawman characterization of the arguments of those opposed to the bailout? Why the smug derision in your responses to my questions and arguments? Why mock my attempts to introduce fundamentals, to point out that the real menace for society broadly is poverty and inadequate housing, not loss of value in 401k plans (which is inevitable)?
> the immediate discussions in which i'm involved are at a much more basic
> level. e.g., the sentiment that it was regulation that caused the
bailout.
> that's what people in the u.s. are discussing.
For many reasons, the US money supply was hyper-inflated (still is, just less so). The boom in home mortgages was a component of this, the massive leverage required by hedge funds to produce sufficient bling for Wall Street was another. A significant percentage of the holding of these funds where the home mortgages. All this money competing for assets drives up related prices, high equity prices, high housing prices, etc.
Hedging is an interesting idea, you make compensating investments so that if one falls, the other rises, and vise versa, mitigating one risky one with one safe one, etc. you don't make individual investments, but invest in complex packages that are calculated to produce a positive combined return //no matter what happens//. These complex formulas actual produce very small returns per dollar, thus in order to make them attractive, each dollar is massively leveraged, meaning most of the investment is borrowed money, or in other words, money invented out of thin air. Rating agencies played ball because of the mitigating "hedging" formulas of these funds where, allegedly, "safe," thus justifying the massive leveraging.
However the formulas where based on assumptions, as they must be. Assumptions that certain elements of the formulas where fixed, and certain elements where variable, the hedges always produced a positive return so long as fixed elements didn't change. One of those elements was that the housing market would continue to expand, and that mortgages where a sound investment.
What's worse is that the capitalization and consumption from "capital gains" driven by all this leverage was the last thread keeping the US economy afloat after consumption was in strong decline already, savings had disappeared, the country is in hoc with a hugely negative balance of payments, and all this with a backdrop of the US dollar losing it's dominance as the world's reserve currency, not to mention encroachments on US military power.
The housing market could not be allowed to slow down, thus more and more morgage-holders needed to be found, when prime borrowers could not be found, "sub prime" markets where found.
In my opinion, avoiding the sub prime markets would not have prevented the crisis, it would simply have caused it to happen sooner, since the continuous expansion of the housing market was underpinning the precarious mountain of leveraged investments, which themselves where propping up the national debt of the insolvent US economy.
> so let me get this straight. you would prefer that there was no bailout
> because you believe that, without a bailout, housing prices will sink to
a
> more affordable level.
To the occupier, a house is always worth a house, general housing prices are irrelevant from the point of view of housing. They only matter from the point of view of the home as "cash machine" delusions of the "property ladder." This practice supported domestic consumption by cashing out capital gains through refinancing, the collapse of domestic consumption, the beginnings of which predate, the "crisis," are also a factor of the current economic situation, as is the still earlier disappearance of savings.
> the goal is to create a situation that will force
> u.s.ers to live more sustainable lives.
>
> yes? no?
No. As I've said before, I'm against the bailout because it will not work, it is not a bailout, but a cash grab, there can be no bailout.
The material conditions of the US economy make shrinking housing prices, shrinking financial industry profits, and lower consumption inevitable. No bailout can prevent this, in fact, nothing short of extorting more wealth from the rest of the world with the threat of military confrontation can, and even that is no longer a sure thing.
I have no "goal," here as I have no control of what the US Goverment does or does not do, I am simply offering analysis.
My goal is worker's self-organisation of production, which is unrelated to the bailout.
-- Dmytri Kleiner editing text files since 1981
http://www.telekommunisten.net