Pretty intersting, relatively non-partisan article about the current economic crisis.  Definitely worth reading.

http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/09/28/do2802.xml

Lehman Brothers was an economic 9/11

by Anne Applebaum

It's very odd to be an American abroad at the moment, reading the headlines in the Herald Tribune, watching CNN report live from Wall Street, waiting for the next piece of bad news.

Ever since the dollar started sinking a year or two ago, those of us who live outside the country have felt as if we were slowly being abandoned by the Mother Ship. Would there be anything left when we next paid a visit to our native land? Or would the world's new wealthy, from Dubai and China, have bought the place up?

But now the ship isn't just sinking, it might well be gone. And it isn't easy to find words to describe how this makes Americans feel, whether they are at home or abroad.

The September 11 metaphor is a weary one: too many events, in recent years, have been described as "a new September 11", or "England's September 11", or even "football's September 11". Still, it might be worth rescuing the phrase one last time.

For if September 11, 2001 was the day that we had to reassess our ideas about America's role in world politics, September 15, 2008, the day Lehman Brothers went bankrupt, may well be remembered as the day we had to reassess our ideas about America's role in the world economy. It's that cataclysmic, that decisive, that irreversible.

Yet while they may eventually be seen as equally damaging, the two events have had a diametrically different impact on our national psyche.

September 11 inspired a national display of unity: Americans mourned together, waved flags together, supported their politicians' attempts to come up with a proper response. In retrospect, it was an extraordinarily bipartisan, even apolitical moment: in the autumn of 2001, there were no significant differences between Democrats and Republicans in their attitudes to the terrorist attacks, though of course those did emerge later on.

September 15, by contrast, divided Americans, immediately and bitterly.

I don't think there's been such a torrent of abuse lobbed at Wall Street since the 1930s. "Greedy" was the nicest thing being said about the "speculators" and "asset-strippers" who are reckoned to have caused the whole mess.

While Democrats blamed "eight years of irresponsibility", furious Republicans, damning Bush's proposed bail-out as "un-American", took aim at their own president, and the presidential candidates became embroiled in the mess.

The fury reached a pinnacle on Friday when Congress suddenly rebelled and refused to rubber-stamp the proposed $700 billion deal. Surely the climax of the day, and possibly the low point in the eight years of the Bush administration, was the moment when the Treasury Secretary, Henry Paulson, got down on his knees in front of Nancy Pelosi, the Speaker of the House of Representatives, and begged her not to block the plan.

There are many reasons why the Wall Street spectacle has created so much antagonism while the World Trade Centre attacks created so much unity, but two matter in particular.

The first concerns what can only be called comprehensibility. Everyone watched those planes hit the skyscrapers, and everyone understood what it meant. By contrast, I don't believe many American congressmen, let along many American voters, really understand the credit crisis, or why it is unravelling so fast.

Nor, let's face it, do many people really understand the proposed bail-out deal. What does a sum like $700 billion, a number apparently plucked out of the air, actually mean? And why didn't the people who now say they know how to spend it do something to prevent the current crisis from happening in the first place?

Things might be different if the nation were led, at the moment, by an administration with a reputation for honesty and competence.

But this, too, is different: in 2001, President Bush still had the support of the majority of the nation, and thus had a wide mandate to deal with the post-9/11 crisis. He no longer has that support and he no longer has that mandate. No one any longer trusts his administration's military and foreign policy leaders. Why should we trust his administration's financial appointees either?

Myself, I think it's too early to say that these events spell the end of American economic dominance: it's just as likely, after all, that they spell an end to the era of post-Cold War prosperity, not just for the US but for everyone else too.

The whirlpool that appears to be sucking down the world's financial companies, one by one, will eventually engulf even China and Dubai, if for no other reason than that Americans are going to stop buying the consumer goods and burning the oil they can no longer afford.

If only fixing the problem were as simple as invading Kabul, or bombarding Osama's headquarters at Tora Bora. But it's not.

What steams me is the government could have helped in rescuing Lehman Brothers. They could have helped facilitate a buyout between Lehman and Barclays. The government, however, forced Lehman to file for bankruptcy and had Barclays purchase them after the fact. They did not want to help facilitate the deal because they did not want to spend anymore money rescuing banks. Now what happens? The government proposes a $700 billion bailout. What is with these idiots? I honestly think Greenspan, Paulson and Bernanke are the reincarnation of Moe, Larry and Curly.

From what I heard the Lehman Brothers thing was kind of a game of chicken. The government did not want to intervene in the market anymore after bailing out Fannie and Freddie while Lehman wanted help. Neither one was willing to compromise with the other. The problems with Lehman were greater than what the government anticipated, so it all kind of blew up.

This is why they didn't hesitate to help out AIG, because the failure would have had even worse repercussions.

There were people 10 years ago who predicted this, and there were many people (like me) who started to see this as being a major problem 5 years ago, and yet the government did nothing. Even though banks shouldn't have given out loans without proper underwriting, and individuals shouldn't have taken out loans they couldn't afford, the government's changes in legislation in the 1990s without any consideration on how they impacted the market are the reason we're in this position.

Highly political but interesting:

There were people who predicted this many years ago. When the government's stated purpose in the 90s was to allow every American to purchase a home, that was a warning flag. When the Fed kept interest rates low for such a long time, that was a warning flag. Do you know when the last two times the government kept interest rates as low as it did in the 90s and then the 2000s? The 1920s and then the 1960s. The results were the Great Depression and stagflation.

Have you guys ever played Monopoly?

Republicans have always stood for deregulation.  Not even cherry-picking the the extreme would make reasonable person think that, compared to Democrats, the Republicans are the ones who stand for regulation.

First off, conservatives (and therefore Republicans) are not necessarily always for "deregulation" as much as they're for regulation which makes sense and serves a purpose ... Years ago, had you asked many conservative minded people if they supported a regulation that forced a 5% down payment on a home, with a 35 year or shorter mortgage, and no more than 40% of a person's take-home income being devoted to the mortgage many would have supported that.

Beyond that, the interesting thing about the video is (in part) how the Republicans were being attacked for what has been demonstrated was a very valid and pressing concern. The Democrats saw the uncontrolled increase in home ownership of people who (previously) could not afford a home as a great thing, even if it meant that these people were given mortgages which they would never be able to afford and would result in foreclosure ... In other words, social engineering trumped good ecconomic sense and a problem which was easily managed was allowed to grow into a monster.

The Republican opinion on economy has always been 'the free market is best left alone.'  That has been true from Hoover, whose idea that the market would fix itself wasn't so popular in the 1930s, to Bush, atleast until the recent financial crisis.

You could make the argument that intervention or speculators soured the free market, but spare yourself the humilation of trying to rewrite 100 years of Republican viewpoints of the economy.