Deja Vu

All of this has happened before
All of this will happen again...

Here's a quote that seems relevant to the current financial situation,

"Another way of defining moral hazard is that it is what results from the combination of privatized profit an socialized loss. In the words of Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America, "The combination of interest rate deregulation with 100% deposit insurance is like the invention of gunpowder - sooner or later it was bound to explode" But deregulation of banking and finance was all the rage ... and the banking sector wanted "the government off its back." Nowadays the last thing it wants is for the government to leave the scene of the train wreck. Ironically, the degree of government involvement in the financial sector ... is proving much greater than before. ... Those deemed 'too big to be allowed to fail' are of course especially favoured, further encouraging bigness.

...

To analyze or even recount the recent and unfinished consequences of the financial deregulation disaster in the United States, or the international debt crisis, is far beyond our scope. We are sure that the consequences will eventually have to include a large dose of reregulation in the public interest."

That's Herman Daly and John Cobb from the 2nd edition of 'For the Common Good', published in 1994. I wouldn't be too optimistic about that reregulation bit, we're just going to go from crisis to crisis without anything changing if the last few decades are anything to go by...

Hoocoodanode?

I was flipping through Jane Jacobs' 2004 book 'Dark Age Ahead ' last night and came across the following passage that I thought I'd pass along for all the economists and pundits out there who offer their plaintive cry of 'hoocoodanode?' with respect to the collapse of the U.S. housing bubble,

"As prices of houses and condominium prices rise, owners can continually borrow more against the rising value of these assets. In Canada, ratios of household debt to household income are thus at record levels.

The miracle of money growing on houses operates even more potently in the United States, where mortgage interest is deductible from income tax and where purchases of resale houses reached record high levels in 2002, as their prices rose to record high levels and mortgage interest rates fell to record low levels. Perhaps the conservative think-tank economist quoted above foresaw and welcomed this bubble. It will burst, either if rising prices significantly push up inflation rates, hence also interest rates, or else if house price inflation slows, halts or retreats."