Everything Is Just Peachy

[tw]

Originally Posted by Luce

While I don't disagree with you in principle, in this case, the recession occurred because we let bankers run wild with mortgage bundling.

Those money games made things look better for years. Until the ponzi scheme collapsed. Making a recession almost into another great depression.

Mortgage bundling was only one of many techniques that business school graduates were using to make profits where nothing was being created. SIV, CDOs, and plenty of other vehicles were used. In every case, massive profits were appearing on spread sheets where nothing tangible was created.

In the case of mortgages, they simply bundled many mortgages into a financial instrument. Then declared the financial instrument as another equity - as if it had value like real estate, a factory product, or a bridge. Suddenly a $1 mortgage on a house created many financial instruments that were also called a $1 entity. Another ponzi scheme.

When this house of cards collapsed, suddenly liquidity disappeared. Which explains is why TARP was so successful. It provided liquidity so that companies could still pay their employees, et al.

But the recession was coming anyway. Tax cuts are simply another money game to pump heroin into the economy. And then pay for it massively later. Tax cuts have never made a more robust economy. Only innovaton does that.

Worse, throwing money at innovation can even create less innovation. Just another reason why tax cuts end up paying for more European vacations. That is a better return on investment.