Paul Kedrosky compares financial markets to wildfires, suggesting that an occassional fire might not be so bad
When wildfires burn a landscape, it’s not all bad. It cleans out underbrush, helping the next generation of plants and trees emerge. Wildfire is also required by some plants to propagate, like various species of chaparral, whose seed pods only open under the kinds of heat created by wildfires. Those species are, in a sense, fire-adapted.
but fires that are too frequent dramatically and perminantly change the landscape
In short, infrequent wildfires tend to be catastrophic, but overly frequent wildfires cause what fire ecologists call “type conversion”: the original plants are replaced by new species, and the new plants tends to be more prone to frequent fires. In other words, frequent fires make an already fire-prone landscape even more dangerous.
Amid the recent fire credit card credit lines are drying up and inflation adjusted US housing is already off 24%, according to professor Robert Shiller.
The alternative energy bubble has not inflated as quickly as some have expected, and the US economy is still left in shambles from debt and overconsumption tied to the real estate bubble.
In No manufacturing. No new ideas. What’s our economy based on? Joseph Stiglitz highlighted the casino nature of the US financial system:
To put it another way, had those in the financial sector allocated capital and risk in a way that fueled the economy, they would have had handsome profits. But they wanted more, and so established incentive structures that encouraged gambling. If they gambled and won, they could walk away with a share of the profits. If they gambled and lost, the investors would bear the consequences. It was almost as if the entire financial system was converted into a giant casino in which the system was rigged to guarantee those running the games huge returns, at the expense of the players. But in Las Vegas and Atlantic City, the games are near zero-sum: The gains of the casino owners approximately equal the losses of the players. The financial-system-as-casino, on the other hand, is a negative-sum game. Those on Wall Street may have walked off with billions, but those billions are dwarfed by the costs to be paid by the rest of us.
The finishing touches on that latest botch may be upon us, with the Government potentially taking on over $5 trillion in mortgage backed securities, according to the WSJ:
The Treasury Department is putting the finishing touches to a plan designed to shore up Fannie Mae and Freddie Mac, according to people familiar with the matter, a move that would essentially result in a government takeover of the mortgage giants.