We Won't Forget

Posted by Dave Fratello on Monday, September 22nd, 2008 at 3:30am.

The cascade of big, bigger and then even bigger financial market news over the past month has been shocking and will be impossible to forget.

We'll remember that this was the time when the housing bubble's burst started to lay waste to our financial system.

For 2 years or so, the lenders who pushed the envelope to expand credit beyond all reasonable bounds have been teetering and falling. (See the Mortgage Lender Implode-O-Meter.)

More recently, the punishment started to rain on firms that midwifed the credit bubble behind the housing bubble. Suddenly, those "innovations" that enabled easy credit, and big profits for Wall Street paper-pushers, don't look so smart.

To make a spectacularly complex story simple, new ways of packaging mortgages wound up hiding information that might help place a future value on them, while the risk in those packages – thought to be low, but that was wrong – was spread out all over the globe. Those bundles of mortgages are worth less now, but how much less? No one knows, and almost everyone has a piece of them.

Everyone has a piece – that's even more true now after the government takeovers/bailouts/rescues/guarantees of Fannie, Freddie and, now, the whole damn mess of toxic waste loan packages. The starting price of the new Mortgage Superfund to the U.S. taxpayers is $700 billion. Add the other bailouts and loan guarantees made since Spring of this year, and we're all in for over a trillion dollars. (A trillion is a really big number.)

We probably won't forget thinking this thing could be solved for only a trillion dollars.

There are pros and cons to this vast nationalization/socialization of the housing bubble's aftermath. It might achieve its goals. (That's up for debate.)

But we definitely won't forget who was in charge when this nationalization happened – one of the most dogmatic free-marketeer administrations ever in Washington, D.C., forced to suck it up and go pinko in its waning days.

Is the worst behind us? Will all the fixes work? Or are we all now about to fall over the cliff?

Your blog author doesn't know and is not paid to know. It's just clear that this is a time to take stock, so we can later look back.

And no, we can't forget this feeling that every time a big, bold solution comes along, some new monster is around the corner.
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