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Although started due to a banking crisis, the current recession is now continuing because of a massive decrease in aggregate demand, not because banks are having trouble lending, so no solution to banking, even if it is indeed still broken, which I doubt, will help us get out of the worldwide recession any sooner. (Another way to think about this is that if housing prices suddenly went up, the banking crisis would also be over.)
True, and very artfully phrased.  But what caused the banking crisis?  It would appear that it was caused by a massive and unsustainable increase in real estate valuation that was enabled by a loose money policy combined with rigorous "see no evil" regulation at the Fed and at other regulatory agencies, especially since 2002. (Another way to think about this is that, were we only able to get the bubble to "un-pop" all would again be well.)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jan 22nd, 2009 at 01:37:17 PM EST
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I agree with your diagnosis.  However, it's not actually necessary to address the cause to solve the current problem.  To illustrate with another example, the cause of the disastrous invasion of Iraq was that George Bush happened to be president.  But now that he is no longer president does not mean the problem is solved. Only eventual withdrawal of forces and a stable Iraqi political environment will solve the problems that resulted from the invasion.  Same goes for the worldwide recession today.  Banks may have caused the problem, but that's water under the bridge at this point because banks are not the ones precluding a solution to the problem -- individuals too fearful to spend are.
by santiago on Thu Jan 22nd, 2009 at 02:34:16 PM EST
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actions have irreversible conseuences.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Jan 22nd, 2009 at 05:06:16 PM EST
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I agree with your diagnosis.  However, it's not actually necessary to address the cause to solve the current problem.
True again.  But addressing the cause is important if we are to at least delay by 50 years repeating the actions that brought us to the current problem.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jan 22nd, 2009 at 05:49:22 PM EST
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Agreed.
by santiago on Thu Jan 22nd, 2009 at 05:59:07 PM EST
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Problem is, they counted the rentals for the smoke machine and all the mirrors as part of the GDP, then stiffed the company who rented it and counted the legal fees as part of GDP. And when the company went out of business, they counted bankruptcy court payrolls as part of GDP. And when the next company bought their assets, they found that the smoke machine was sent back to China, and the mirrors were all too broken...but they found ways to count the shipping costs and the insurance auditors invoice as GDP.

There's more trillions gone than there is production in the world, it was part of our great GDP, but it still is a debt to someone.

There's no emollient left to make a bubble with. But note, the USians just took delivery of a new aircraft carrier on 10 Jan
($6.2 billion), they've another in production (only $5.1 billion) and dumped nearly $400 million onto Northrop to start designs on the next one. So things must not be really all that bad. Why do we need a banking system when we has gots the aircraft carriers. Your Industry New

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Thu Jan 22nd, 2009 at 09:01:38 PM EST
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