Paul Krugman sees our future and it's not pretty. The word recession is on the lips of those in the know.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.
The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.
Avedon has a must read post on this. She quotes Krugman and marks the point where it all went wrong.
This time, market players seem truly horrified - because they've suddenly realized that they don't understand the complex financial system they created.Well, I understand perfectly. I understand that the regulations they threw out were created precisely to prevent crap like this, and I felt the chill to my bones the minute I realized Reagan was undoing all the little safety catches that had been protecting our economy. Bastards. We've had arsonists running the show.
This should be a lesson to all the 'small government' advocates. When you employ a slash and burn strategy on regulatory control to foster the growth of 'free markets,' all you end up with is an economy in smoldering ruins.