akuma, the boom and bust cycle is one of the driving factors to economic growth and to eliminate the lows at the cost of the highs just leads to stagnation.

Booms (or bubbles if you’d prefer) are typically driven by speculation where (after people see the “easy” money made in a market) a lot of people take their money and invest it into a hot market. This massive amount of influx on money into the market translates to an unreal level of research, development, and infrastructure being developed which wouldn’t normally be produced.

Eventually, the market will have grown too large too quickly and will be full of too many weak competitors and something will trigger a collapse of the speculative bubble. Lots of imaginary equity will have been destroyed, but the research, development and infrastructure will still exist for the remaining competitors to buy at fire sale prices.

In hindsight we can see how this has happened, just look at the internet and consider how sites like Amazon would have never received the investment required to become the companies they’re today had it not been for the dot-com bubble.

Now, I do agree that letting the financial sector collapse would have been unusually awful and I'm willing to accept some governmental support of that industry. Where I disagree is that this was the result of the boom and bust cycle ... In my opinion there were one reason why the financial sector was put at risk:

1. Long standing regulations where changed for socio-economic and political reasons

The government’s involvement in the economy should be primarily focused on ensuring that reckless and dangerous behaviour does not become common place, and corruption does not become widespread. Before the end of the Clinton administration, and long before people started to see the risks in the Bush administration, it should have been clear to the "brilliant economists" who are now prescribing financial stimulus that there was a serious problem in the credit markets. On top of that how many Enrons and Bernie Madoffs have to exist before the SEC grows a pair?

I absolutely love your math, son.

I should have spoken clearer, I mean to say excessive highs and lows. We were unequivocally in an excessive high recently, which meant the government should have piled on the taxes to raise revenue and prevent growth from collapsing in on itself.

Otherwise I mostly agree, although you guys are overblowing how important that one bit of regulation was. The Fed had overextended credit across the board, not just to the housing market. Not to mention the financial sector itself was the one who created the snowball effect by rolling mortgages into nice little packages and reselling them. I don't understand how some of you have so much faith in the market being left to its own ends in one sentence and then in the next you say that the government forced the financial sector into a corner, pinned it down, and made it start repackaging and resaling mortgages wholesale.

This is essentially what happened. The government gave the financial sector a knife. The financial sector turned it into an iron maiden. What you are saying is like blaming a gun manufacturer for a school shooting. You are rearranging your causes and your effects.

What happened is the democrats made Fannie Mae and Freddie Mac lend to certain people in minorities. Fannie Mae and Freddie Mac were not lending to those people because they were minorities but rather because they did not meet the financial requirements for the loan. However, due to pressures from certain democrats caused them to lend to these people anyway. When those people were unable to pay their mortgages, the housing market got screwed up and we are in the condition we are now.

I agree that the US economy was doing great. When all of this started, we were still fine, just not doing so well, but our economy was still average. The media, however, felt they needed to scare the population into hoarding money because we were heading into a recession. That is the main reason we are in a recession now. The economy is healthy when people spend money.

Now the government is trying to stimulate the economy by spending money. This does not make much sense. If we make 17 trillion dollars of money in one year, and the government spends 4 trillion, then the private sector only has 13 trillion to spend. It is a simple equation that has no exceptions. Also, the money they are spending to supposedly stimulate the economy will take so long to be spent that we may be out of the recession before it goes through. The more sensible thing would be to lower taxes. Then the private sector would have more money to spend now.

Keep in mind that all of this is almost the same thing that happened during the Roosevelt administration. The stock market crashed during the Hoover administration, and Hoover did little to "help" the economy. Two years after the stock market crash, unemployment was 9%. Then, Roosevelt's administration passed laws that was supposed to stimulate the economy. The unemployment immediately shot up to over 20%. causing the Great Depression. Roosevelt blamed all of the problems on Hoover, and it wasn't until afterwords did people learn he was a bad president.

Thats a different bailout than Obama's.

The bailout your posting about is the bank bailout and guess what? Obama is probably pissed after that ahole's interview and statement.

"30 billion dollars of the government bailout money was given to stock traders as bonuses". Corporate criminals prospering during hard times makes us all sick in the stomach.

I have read most of the posts in this read...and not one mention of the Federal Reserve. It is both unbelievable and unfortunate. Anyway, the bill passed in the House and currently awaiting approval in the Senate is not an "emergency stimulus." It is an abominable, contemptible piece of legislation that every American should pray is somehow opposed in the Senate and eventually abandoned by our government. This past week caused me to feel a modicum of pride in my estranged party-GOP.

"Two centuries ago, when there were plans to create a huge fund of money to pay off Britain's national debt, the great classical economist David Ricardo objected on grounds that-- no matter what the money was said to be for-- politicians could spend it for whatever they wanted."

source: http://townhall.com/columnists/ThomasSowell/2009/01/06/the_economic_stimulus

You would think people would realize what Mr. Ricardo said then still applies.

I was talking about the Federal Reserve!  I'm not acting like a broken record like the rest of these people claiming that one decision by Congress led to an entire economic collapse.  If you truly believe that, then I sincerely hope you are never put in any kind of position of power relating to economics.  Economics is far more dynamic than simple but-for causation.

 Yes, you did mention the Fed.  Yes, one act of Congress did not lead to this financial crisis. It also was not caused by the Community Reinvestment Act or the repealing of Glass-Steagall as some have suggested. Aside from the Fed, the SEC is also to blame. The SEC's change in policy in 2004 (when sub-prime mortgages increased markedly) relaxing minimum capital requirements (ironically, to increase its oversight) is also a catalyst for this crisis. Of the five Wall-Street firms that qualified and took advantage of this unfortunate change, three have collapsed, and the other two are now reorganized. For example, Bear Stearns had a 33-to-1 gross debt ratio before its demise. Most other firms never exceeded an 8-to-1 ratio. If one couples the obscenely low interest rates with a relaxation in minimum capital requirements, one has created a recipe for disaster...and we received a disaster. Despite the inane policies of the Fed, there was regulation that would have mitigated or (possibly) prevented this damn crisis from occurring.