Long, and almost certainly wrong, the only question is how wrong, explanation of the CRISIS ON WALL STREET, Part 4

So, G. (no, wait, it's g.) posted an hour long YouTube video that took me about 8 hours to get through, because I stopped, looked stuff up on wikipedia, rewound and listended to again, etc. I wrote as I went along, too, and here's what I wrote (the wikipedia articles are referenced in Part 3).

My understanding of “Crisis on Wall Street” : Princeton economists review recent events on Wall Street and assess the implications for the economy and public policy – September 23rd, 2008
posted on Impolite Company: http://morisey.typepad.com/my_weblog/ and available on YouTube at http://www.youtube.com/watch?v=Wj_JNwNbETA


My reaction

The first portion is definitely the hardest to understand, mainly because there are so many unfamiliar terms and concepts. From watching this (especially the first part), I can understand how easily the Very Smart People on Wall Street got very distracted by the trees in front of them and didn't notice that the forest was burning.

It seems like there are basically two things that need to be done:
First, Wall Street is structured a little like a house of cards, and once panic strikes, it gets out of control real fast. Seems like the solution is to put things in place that remind people not to panic - Douglas Adams, where are you when we need you? I think Guy 2 got into at least the edges of this – part of what makes the stock market and Wall Street work is that you don’t ever really know what something’s worth. If my car is really worth a thousand bucks, but I can sell it for $2000, then I’ve created worth in some way. Transparency works against this - if you can look up the blue book value for my car, then you’re not going to buy it at 2k if it’s only worth 1k. But if you have less transparency, you have more possiblity for corruption. So maybe the problem is with the system of an economy that is made of buying and selling more than making, because creating worth by obfuscation is inherently unstable. Which would seem to argue for keeping Wall Street tightly regulated and lean and small, while encouraging more manufacturing and building and etc. But if Wall Street has been financing the building, and Wall Street can’t, anymore, who will? How does Venture Capitalism figure into all of this? But wait – we have the Small Business Administration, and some amount of subsidies available for entrepeneurs that comes from the government – is this the difference between socialism and capitalism? If the government had said to Brin and Sergey, “ok, here’s a couple of million dollars, go make Google,” and they had, and had paid back the government, all well and good. But what about those two yahoos (no pun intended) who tried to make Smoogle? They lost the government 2 million dollars! How is that recouped? Seems like we’ve moving into more of an insurance model – Google has to pay some percentage of its profits to the government every year in return for being lent the 2 mill, and that return subsidizes Smoogle’s failure. And here’s why the capitalist model isn’t right for it – why it should be done by the government: the point isn’t to make profit, it’s just to break even.


Second, we need to find a way to stabilize housing prices. I don’t buy the argument that that’s not possible. Why are they falling? I haven’t seen that explained, except that there was a bubble and inevitably it burst. So, housing was over-valued? The problem on the street is that folks can’t afford their mortagages – so, if we adjust the mortgages downward, essentially making the housing cheaper without forcing them to be sold, seems like that would help things – you’d still lose money, but you’d lose less, and people would be less homeless. And then, perhaps, you could do something to squeeze people out of rental situations and encourage the renters to buy. Maybe you could make it easier to buy a house without being a citizen – if migrant labor can do the work we don’t want to do, maybe they can buy the houses we don’t want, too. I’m sure there are things that could be done.