I am interested in the various claims about what has caused the economic meltdown this year. Blame is being directed in a myriad of directions.

I've heard blame placed on all of the following: investment bankers, investors, investment banks, the Fed, Ben Bernanke, Alan Greenspan, the Treasury, George Bush, insurers, under-regulated markets, over-regulated markets, sub-prime borrowers, mortgage brokers, mortgage lenders, Bill Clinton, Congress, foreign investors, foreign savers, and more.

That's a lot of blame to go around. Let's consolidate the list a bit.

First, let's roll up the lending/investment part of the financial industry into a single category. They're pretty intertwined these days, particularly after the repeal of the Glass-Steagal act in the mid-90's. This will also include insurers.

Single individuals may wield significant power and influence over certain organizations, for example the Fed chairman over the Fed. However, those individuals are still beholden to various boards, or other forms of oversight. So, we'll combine those people with their groups.

Let's combine the Fed and Fed chairmen as that's really one concept, the US's central bank. And we'll combine presidents, their administrations, and Congress into just the Federal government. After all, if all parties are exercising their proper checks on the other, they have to work together to act.

We have different classes of investors and those can be combined for our purposes.

That leaves us the financial industry, investors, the Fed, the US Government, under-regulated markets, over-regulated markets, and sub-prime borrowers.

What do we know about each of these groups? Well, the financial industry has, in recent years, engaged in massive fraud. They gave loans to unqualified people, qualified people against a low teaser interest rate instead of the long term likely rate, pushed adjustable mortgage rates. Then, they securitized all these mortgages so they wouldn't have to actually carry the loans themselves--after all, they knew about the borrowers' (in)ability to pay and didn't want to hold them. They hired insurers who lied about the quality of the loans and gave them inflated ratings. The mortgage/investment banks also put all of this into SIVs (structured investment vehicles) so they could write it all off their books. That's a lot of fraud.

The US Government (President and Congress) enabled much of this. It started by repealing the Glass-Steagal act which kept many of those functions as separate companies. The government also directed their own GSEs (government sponsored enterprises), Fannie Mae and Freddie Mac, to lower their loan standards so overall home ownership would increase. This is largely how subprime loans became so popular.

The Fed also artificially lowered the interest rate (that they even can means we have regulated, not market, interest rates). This sends false signals to the market that there is an excess of savings and to spend it in capital investment. The ultra-low reserve percentages required of banks also allows the banks to print their own money in the form of increased lending. This drives significant inflation. Most of that inflation was evident in increased home and stock prices.

Sub-prime borrowers frequently lied on their loan applications (and the lenders were good with this). More fraud.

Given what I've outlined with the government and Fed manipulating policies, interest rates, and more, it's easy to find support for both under-regulated and over-regulated claims.

We also should not consider fixing the fraud part of this as regulation. Fraud is criminal activity. I suspect we already have more than enough laws to prosecute the fraud. We should prosecute too. Fraud and other criminal activity is never acceptable and needs to be dealt with appropriately -- even if it means thousands or tens-of-thousands of criminal prosecutions.

Considering what's left after the fraud, there's not nearly so much. Some of it is clearly over-regulation. Interest rates and the money supply, both of which are regulated by the Fed, should be market decisions. If the market had control over those, interest rates would have been much higher, curbing most of the dangerous activity. The government's manipulation of official inflation figures is also a problem. I'd like to call that fraud too, even though it's not really criminal behavior -- it's just political manipulation of figures to benefit the President and Congress. That the formulas to calculate official inflation and other key statistics are revised periodially should make it pretty evident that something's not right.

If we're going to regulate more at all, it shouldn't be to regulate results, but to regulate to enforce transparency. If SIVs had been on the books, the absurdity of what was going on might have been evident earlier. Keeping massive organizations a bit smaller by a separation of concerns (reinstituting Glass-Steagal) might have benefits too.

However, there is another option -- make it very public that there is substantial risk in what these firms are doing in general. That is, don't allow them to fraudulently claim levels of safety in their investments that's not there. The government doesn't need to guarantee, insure, or whatever any of it. If the market is aware of the risk of all of it, the market can regulate it all itself. This has the added benefit of all market-centered approaches: millions or billions of individuals will always evaluate things collectively better than a small set of bureaucrats even if they are ostensibly not politically motivated.

The last group are individual investors. After everything else is considered, I don't think it's fair to blame them at all. Especially since the majority of them don't actually invest directly, but indirectly by use of mutual funds, money market accounts, and other investm (more)

Like many I suppose, I've been on a self-directed crash course of study the last few months, learning all about economics. It has been driven by a desire to understand the current economic unraveling -- what has caused it, what hasn't, how it should really be fixed, whether various solutions and fixes will really help or hurt.

Here is one of this morning's headlines in my inbox: "How to Avoid the Horrors of Global Stag-Deflation?"

The author (Nouriel Roubini) believes deflation (a reduction in the amount of money in the world, typically resulting in lower prices) is a horror. That's really strong language. In fact he believes even really low inflation is highly problematic because it's getting too close to the prospect of deflation, "Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. ... Thus inflation in advanced economies will fall towards the 1% level that leads to concerns about deflation."

So he's opposed to anything less than at least a modest rate of inflation, say 2-3%. If prices actually start to decline, then it's a horror.

I don't understand this. How is inflation (making my money worth less) good and deflation (making my money worth more) bad? If you actually have money, it's somewhat the opposite it would seem.

But, today's world is all about credit. So let's consider this in light of debtors and lenders. If you are a debtor, then inflation is ostensibly useful. You borrow money and pay it back with less valuable money. Of course, the inverse is true for a lender. They lend more valuable money and get back less valuable money in return. This isn't a particularly profitable thing to do generally, so lenders account for this reality by increasing interest rates to cover the inflation. If the interest rate includes inflation, then it's really not doing anything for anyone -- the market has taken care of the problem.

But if it isn't doing anything for anyone, why insist that inflation is necessary and deflation is a horror? Yet, Roubini isn't alone in this assessment. It seems to be widely accepted that inflation is good and deflation is awful. Something else must be amiss.

Any why isn't a stable money supply (neither inflation nor deflation) not desirable over the other alternatives? That would be predictable and, well, stable.

What am I missing here?

today is 08/08/08. or 8/8/8 if you like it really short. i like interesting numbers/dates. anyway, just sayin'... eights.

Apologetics has been a big thing for the modern-worldview steeped church -- particularly in evangelical circles. The goal has been to prove why christianity works. The value of this of course relies on a modern worldview -- where one believes in human-knowable objective truths.

In the post-modern world, we're going to have to rethink apologetics significantly.

This is because, first, post-modernism doesn't buy into human-knowable objective truth. So proving things fails to be meaningful to a post-modern.

Second, because the very premise of christianity is faith. Faith is at odds with proof. This actually has been a failure of much of apologetics all along, but the transition to post-modernism makes it a more obvious failure than before.

So maybe efforts should instead be spent on helping people understand that all belief systems are based somewhat on faith and setting foundations that allow for christian beliefs -- we can't prove anybody into christianity anyway.

There seems to be a standard assumption in American culture today that bigger is better.

But, why be big?

Why is big better?

This same assumption permeates much of the American church too. Churches must be bigger. Bigger churches are more successful.

Is that really true? Are bigger churches really better, or more successful, or more godly, or <insert claim here>?

Maybe churches should go back to the bible and evaluate what it teaches about big. The answers might be surprising.

And if bigger doesn't equal better, more successful, etc., then why pursue being bigger?

i have a bunch of friends and acquaintances who seem as frustrated with the church as i am. they're asking questions, less than satisfied with today's status quo. no, contemporary or emergent churches or church services aren't helping solve the problem.

yesterday, one of the guys i know from college wrote a bit about fans (in the sports sense) and the church.

i think there are even more similarities between sports fans and church attendees than he talks about. lamentably, i also think that sports events are much better examples of worship than church services.

options, options, options. at different times, life presents different options. sometimes it's just one, or seemingly none. at other times, the options are abundant--this is one of those times.

the options aren't necessarily similar either. it seems that pursuing one necessarily puts others on hold, maybe just a few years, maybe forever.

i hate forevers. forever's a really long time.

options are hard, harder than having just a single path. options require decisions. options require courage, and bravery.

options, options, options.