money can work

Macroeconomic summary

This is fairly good at summarizing from a true economic perspective (ie, plus and minus). The key problem is that 'plus' and 'minus' are still very subjective terms. A 2% gain in home ownership, or the access to necessary credit to support people as they attempt to move up the socio-economic scale is a subjective gain. The cost of massive loans to make those gains, to people who couldn't actually afford them, and the repackaging of these unstable loans as investments (investments that most risk assessment firms failed to understand until too late) is also subjective, but as we are seeing, a very stiff price to pay for those gains.

It is worth considering how much it will cost to 'fix' and how much it costs to adapt. In the case of financial information, the key question is transparency. When the public doesn't know what they are buying (either as a mortgage product or as a security traded mortgage investment), then its pretty clear that the market can misbehave. Health care and its insurance agents have the same issue. So some level of (enforced) regulation becomes appropriate. Supposedly we passed a law (Sarbanes-Oxley) a few years ago, after the Enron scandals, that required better disclosure information. Obviously it hasn't worked out all that well. It is worth trying to discern why that might be. Much like our income tax system, the costs of compliance should be streamlined as to be minimal (or even non-existent). A company should naturally want to know its economic standing and because of the usefulness of reporting its relative successes (when it should have such) on Wall St to attract new capital, most necessary fiscal statements are basically already compiled.

The trick with this situation is that the fiscal statements did not tell the whole story. For example, WaMu bank was just bought out by JPMorgan. The reason: the massive profits they were raking in for the earlier part of this decade came from loans and credit issued to people who couldn't afford it. Hence they were raking in high interest payments from unstable creditees. Eventually giving money to poor people and saddling them with higher risk assessed interest rates (and payments) as a profit bearing industry has to collapse. Few were commenting on this type of practice and those who were, such as this article suggests, seemed to think it was a good idea. In practice, some level of consumption or credit should be available to people, even those who have questionable credit history or impoverished incomes. I think the issue is how to set up a means of providing it without the associated marketplace being an unstable profit-death spiral in need of repeated bailouts or failing banks.

Of more utility is long term thinking here. People in minimal economic circumstances presently should be provided the opportunity to move up as their abilities allow. That basically happens because access to credit can allow people to begin reducing consumptive habits and debt spending, not because access to credit gives a license to expand personal lifestyle. It basically becomes an offset for financial emergencies and creates a safety net for unemployment or slow work cycles, but this is not how it is universally treated. For example, young people with new credit routinely overextend and pile up debts in both credit, student loans and new mortgages. Managing this complicated affair is not taught in basic education and few parents lived through the experience themselves. But instead of providing responsible methods of use, the credit card industry simply thought of this as a profit generating cash cow, or the golden goose. It was of course, a way to eventually starve and kill the golden goose by dragging it down with debts, not a way to profit.