* Brand me a stupid hick Republican, but somehow it seems that every time the marginal federal income tax rates go down, net takings by Treasury go up. Every. Time.

* CRA absolutely is responsible for a big chunk of this mess, in tandem with Sarbanes-Oxley/mark-to-market. The funny link above about the crisis (with the swearing stick figures) is pretty accurate, but they leave out one crucial problem. The post-Enron accounting rules require that if a mortgage is repackaged and resold through five levels of indirection (buyer to bank to security to another security and so on), and it loses value, each of the 5 levels has to record the same loss separately. Now a 10k loss in the home value becomes a 50k loss on paper. This is stupid, but that's not unusual for acts of Congress. Swalve above said something about 99% of mortgages getting paid -- it actually fell to something like 94-95%, and most economists agree that the change is because the CRA required risky loans.

* I don't know a lot about the budgets of churches, but I rather suspect that even if you taxed churches at standard corporate rates (see below), you'd be lucky to get 10% of this bailout paid for. Could be way off, though. Also, why churches specifically, rather than all non-profits?

* There's a big, fat hole in the international tax jiggery, and we're too dumb to do anything about it. Those socialist utopias in Europe you're so in love with ("much nicer countries" indeed!) tend to charge *much* lower corporate income tax rates than we do here in the US of A, very often 0%. They make up the difference in VAT (or whatever they call it locally). This has the effect of a double-whammy for US exports and a get-out-of-taxation-free card for US imports -- pay no income tax and no sales tax if you manufacture in Europe and sell in the US; pay both income *and* a big fat sales tax for manufacturing in the US and selling in Europe. IMHO, the answer is to adopt the European model of taxing consumption instead of productivity, but that doesn't get a lot of attention these days.

This is really just scratching the surface and I know there's oversimplification and ignorance on both sides but I can naively hope that someone, somewhere actually learns anything new from from this small comment of mine.

I guess by 12-18 months ago, the writing was truly on the wall...

1) Deflation is indeed the potential problem. The stock market has lost (at last count) something like $7 TRILLION in value. Printing $700 billion to try to fix that problem is a drop in the bucket, inflation-wise.

2) The republicans like borrowing and spending because they are the ones who profit- first in the initial spending payouts, and then on the interest they pay on the borrowed money. Which are just the various government bonds rich guys keep their money in. On one hand, borrowing costs less than taxing because borrowed money gets paid back in future dollars, generally worth less than current dollars. On the other, it costs more, because constantly generating excessive inflation costs everybody.

3) It is simply incorrect to say that 40% of Americans pay no taxes. They may not pay very much income tax, but there are tons of other taxes out there. Social Security is 13.5% of all income up to about $100,000. So the poorer pay significantly more of their income on that. Half of that is paid by the employer, but that just hides the cost from the taxpayer. If one is self-employed, they pay the whole weight. Medicaid and medicare is another percent or two. State income taxes vary state by state. In Illinois, it's a flat 3%. I happen to live in the Chicago area, where the sales tax is over 10%. There's even a nickle tax on retail fountain beverages. I buy a delicious 32oz CocaCola, and the City takes a nickle from me. If someone has a large family, they pay less tax on the same income as someone who doesn't- they take more and pay less. If I buy a car, I have to pay sales tax. I have to pay a transfer tax. I have to pay $65 to transfer title- just for a piece of paper that says I own the car. Every year I have to pay $78 for the license plate, $26 for a village tax. Then fuel taxes. And a $2 tax to dispose of a tire should I need new ones. Every year, I pay about 2% on the value of my home. That's a neat trick they do- instead of raising real estate taxes, they just reassess the value of my home. "Congratulations to you, citizen! Through hard work and good government, we maintained the low, low tax rates. And increased the value of your property! Please give us more money. [Jedi handwave] We didn't raise your taxes."

Oh, and after calculating my income taxes every year, I have to run that through a formula to figure out whether I've paid enough. If I haven't, I am subject to an alternative minimum tax. Instead of raising tax rates (the horror!), they just put a parallel tax system in place.

I'm not complaining- it's still pretty low. But not the cheap and easy paradise it might seem to be. It's just a lot more nickle and diming that's obscured by seemingly low income tax rates and checks for $600.

4) Subprime loans weren't the problem. Subprime borrowers paid quite handsomely to get in the home ownership game. Heck, my first loan was subprime. I paid a nearly 2% premium because I was a risky borrower. The vast, huge majority of mortgages do not fail. Something like 99%. The bubble popped because that dropped to something horrific like... 98%. The problem was in overleveraging. If real estate didn't pop the leverage/credit bubble, something else would have. And it wasn't caused by any deregulation- the deregulation people talk about is removing the barrier from investment banks and retail banks entering each others marketplaces. That should increase competition and increase banks' desire to only engage in sound lending practices. No, the failure was that the derivative (leverage) marketplace literally innovated its way past all regulations, and was an opaque, unregulated wild west.

It is however still interesting to ask how big this downturn will be and how long it will last. There are two really noteworthy large downturns you can look at in modern history, if you're looking for examples of how the larger downturns play out. The Great Depression is probably the less interesting of the two, because the key factor that brought it to an end was a world war of the type we hope not to repeat. However, the stagflation in the seventies was also a pretty significant downturn and yet did eventually come to an end more or less on its own, when it had run its course. (Yes, there were actions that governments took that had some impact on it, but they didn't create it and couldn't end it either.)

And don't worry about your investments (if, you, erhm, have any; all I've got is a normal savings account...) Unless you've made *foolish* investments (e.g., all your eggs in one basket, or putting money into long-term investments such as the stock market when you're going to need the money in the short term, or taking out a mortgage without a downpayment adequate to cover minor reductions in the property value), you shouldn't have a problem. These things work themselves out over time. Even the Great Depression came to an end, and people who had made sound, sane investments before the crash, and didn't knee-jerk and pull them out when it hit, found that after 10+ years their investments *were* profitable.

A lot of people want to believe that we shouldn't ever have any downturns in the economy, that everything should just always be up, up, up. But that's naive, unrealistic, impractical, and childish.

And as far as atheists believing in God, the truth is that most Americans don't have any idea what they believe about such things, because their attention is welded to other issues entirely.

A typical bank operates by lending for longer terms (eg home loans) and borrowing at short terms (eg customer deposits). Generally, in most western economies, the amount put on deposit with banks is significantly less than the amount borrowed by customers. So the banks fill the gap by borrowing themselves, in the wholesale markets. The need for wholesale borrowings is particular significant in Australia - the majors here need to fund 35%+ of their balance sheet this way.

The current "crisis" has very little to do with subprime lending. Total losses globally for subprime have been estimated at approx USD 300bn. Total new equity issued by banks globally in the last 12 months exceeds USD 500bn. So the actually losses from subprime, or related issues are not going to cause that big an issue.

The actual problem is lack of confidence in the system. Once people stop lending to banks, they can very quickly get to a situation where they are unable to pay the bills when they come due. It is not about suffering losses - just about the cashflow. That is what has taken out every bank that has failed in the last 12 months.

You can see this lack of confidence in the rates that the wholesale markets are charging the banks to borrow. 18 months ago it cost an Australian bank approx 35bp above swap rates (why we measure costs this way is an essay in itself, but trust me here). Now (assuming people will lend at all), the costs are 140bp+.

Of course once the bank is liquidated you'll see real losses get passed through. Once you are dumping assets, they become worth a tiny fraction of the original value. eg, I've seen media comments that Lehmans creditors will only get 35% or so of their money back.

This contributes to the problems too - once somebody starts dumping assets at 50% of their value, everyone else has to mark the value down too. That is the sort of nasty feedback loop that really caused the subprime crisis - the assets started getting dumped and all of a sudden they are worth much less than everyone expected. Actual losses on that lending become kind of irrelevent.

The bailout packages that governments are announcing globally are about making sure that banks can borrow enough money to keep operating.

Once all the political blah blah dies down I expect these governments will actually make very large returns on their lending. So long as the system survives. If the system dies then we are all in a very nasty situation.

Hope that diatribe makes sense.