The Age of Prosperity Is Over

About a year ago Stephen Moore, Peter Tanous and I set about writing a book about our vision for the future entitled "The End of Prosperity." Little did we know then how appropriate its release would be earlier this month.

Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. This process is the topic of Nassim Nicholas Taleb's book "Fooled by Randomness."

David GothardWhen markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

There are many more examples, but none hold a candle to what's happening right now. Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.

Why would the mortage writers, like Countrywide, the investment banks, the insurance companies....why did they want...why did the let some, in fact, a great amount of business and money leave into the CDO/swaps and stuff?
If these instruments were a good idea, safe, at the true and honest price, they would of kept them in-house. But they didn't. Everyone wanted the fees, but no one wanted to hold the risk. They new the sub prime customer would default, they knew their AA, Alt Plus were buffed up goods of lower quality.

Why are small, local banks that originate loans, and keep the mortgagee and thus the risk in house, doing fine? Because they knew and cared.

So, the whole racket was to strip money and pass on risk, to pass on the stinking waste bag of this racket.

Morgages were just the vehicle.

I dislike having to say anything disparaging about President Bush.

The President certainly is on record as having called out the problem with Freddie and Fannie. But his calling out was muffled having never reached the electorate.

I suspect President Bush concluded perhaps wrongly that he could not press for genuine financial reforms without jeopardizing the funding for the Surge into Iraq. In other words, he decided the War had to be won and a risk would need to be taken with the economy. Of course this is all hindsight.

I think it likely that the President’s economic advisors presented him with a summary of the razzle-dazzle of Wall St. actuarial tap dancing of how Fannie and Freddie risk was sliced and diced into a tranch sandwich.

And President Bush ate that sandwich.

Now the rest of us are holding our noses.

If only our President had believed from the beginning that there were two wars of equal importance, the one abroad and the one at home. Yet he signed that Banking bill years back that was supposed to ‘reform’ banking and lead to greater personal responsibility.

If we need to build gallows for any persons, let it be his council of economic advisors. We will reserve judgement on the President for later.

But first republicans should band together in unity because the democrats are now exposing their true colors in Obama. We can now see what they are and have always been, socialists backed by anarchists willing to use terrorism to achieve their aims.

You’re still missing the first link in the chain.

The banks were forced by the government to remove previous lending standards in assets, income, down payment and credit history. Because those standards had a ‘disparate impact’ on minority groups, it was deemed discriminatory to enforce them—even equally. Luckily for a time, you had Fannie and Freddie also forced to come in and guarantee such assets moving through the pipeline. This made it profitable for all involved—for a time.

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