Let's turn around and assume pure motives for all the actors in the drama

 that has become the US economy, rather than just spout slogans about

 "Greedy Banksters" 


 Put yourself in a bank's shoes for a second.  If I buy a house, and get a

 mortgage from you, you effectively have a house.  You let me live there

 and pay insurance and taxes on it, but the house is pretty much yours. 

 Now, several hundred of my friends buy houses, and get their mortgage from

 you.  Now you own several hundred houses, but you're a bank, and have no

 use for several hundred houses. 


 Now the factory that employs 1/2 the workers in your small town comes to

 you and says "Our equipment is all falling apart, and we could make more

 money and hire more workers if you lend us 200 million dollars to retool

 the factory".  You'd love to lend them the 200 mil, but all you have is a

 bunch of houses.  You think "these houses are worth money, but there's no

 way to turn those houses into money"


 Then along comes Big NY Investment Bank, and they say "We will give you

 money for the houses that you have" and it's the perfect solution.  You

 get money for your houses, which weren't doing that much for you in the

 first place, and you can turn around and lend that money to the factory.


 The failure was not that they weren't investing money in real stuff, they

 were just doing it poorly.  Very poorly in fact. 


 If everybody had been able to pay off their NINA loans, and housing prices

 had flattened rather than cratered, then there would have been a slight

 contraction, and everybody would continue on.


 At their heart, the goals behind CDOs are actually good goals.  They take

 a pretty solid asset, and let the investment banks turn that asset into a

 more liquid form so they can use the asset to lend money to other people

 and businesses, so that they can build factories, or hire more people.


 But, they failed.  The fact that they're still in business is a little

 puzzling to me, but they kinda have the entire US economy over a barrel,

 so I think some people let this one slide, while they figure out how to

 fix the big problem, which is that the US economy has become far too

 dependent on credit for day-to-day activities, and if that falls apart,

 then a lot of shit goes down with it.


 Having said all that, there was a lot of shit that happened, that should

 have been regulated, that shouldn't have happened, that was downright

 criminal, or should be, but just because the tools didn't work in this one

 instance doesn't mean we should throw the tool out.  We should just fix



The stock market used to be a much more concrete indicator, back when stocks

paid dividends.  Back then, you would buy 200 shares of GE, not so that you

could turn around and sell them for more money later, but because GE would 

pay out annual or quarterly dividends to it's stockholders, and if you got 

any money on top of that from selling a share, that was a bonus.    

Nowadays, you "Buy Low, Sell High".  So you buy a share not on the         

expectation of a steady return over time, but because you think a share is 

under-valued.  You're betting on the fact that the company will make more  

money next quarter, or next year, than it is now.  A year ago, everyone was

pretty sure that the next year (ie: the year that just passed) was going to

be pretty crappy for pretty much every company.  They were right.  Now it  

seems a lot of people are betting that companies are going to make more    

money than they did last year (which is actually not that bad a bet,       

considering how bad the last year was).  So they invest in stocks that they

think will go up.

This has the effect of putting more money into companies so that they can  

turn around and expand, and hire more people.



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23 October 2009