Hey all, I'm back home, safe--and eating home-cooked meals again.  Yum!

I've been following the political winds on C-PALSY and watching the news
catch-as-catch-can.  Ken, I agree with you that much of the mess we find
ourselves in has much to do with the greed of speculative banks that lured
people into buying homes they really could not afford.  I think that they
knew--or thought they knew, statistically, that a certain percentage of
borrowers would not be able to pay their mortgages as rates rose, but they
lowballed the figures when they viewed the stats as they wished to see
them.  Here is an interesting essay by Nassim Nicholas Taleb who posits that
the banks,and the Fed, viewed probability through rose-colored glasses:

http://www.edge.org/3rd_culture/taleb08/taleb08_index.html

A big part of my job at the County is looking at "risk" (terrorism, flood,
famine, etc.) and matching it against "impact" (no one gets hurt, many get
hurt, everyone's dead, etc.) and coming up with an analysis (Risk Impact
Analysis).  Generally, events that are low risk, meaning they have a low
probability of occurring, have greater impact than events that are high risk
(high probability).  If we wish to minimize risk, then we concentrate on
things that are higher up on the risk scale.  For example, it's a pretty
high risk (high probability) that someone would bring a weapon into a
courtroom to settle a dispute, avenge a death, etc.  The impact, though,
would be (statistically) fairly low as the offender would likely be subdued
or killed before hurting more than one or two people in the courtroom.  We
want to minimize risk, though, so we put metal detectors at every outside
entrance and at the entrance to the courtrooms.

Now the risk of a nuclear suitcase bomb being exploded inside the courthouse
is, statistically, quite low.  The impact of such an event would be quite
high (everyone's dead).  Because we "manage for risk", though, we don't put
too much time or money into "hardening" our environment.  If we did, that
would be "managing for impact" and leave ourselves open to those events that
are much more likely to occur.

It appears that the banks managed for impact, or for those low-probablility
events, and allowed themselves to be more open to risk.  The impact is that
they would make oodles of money from the up-tick in adjustable-rate
mortgages and figured the risk of loan defaults to be statistically
manageable.  They figured wrong.

The $700B grew to $800B as money for pet projects was added to the bill.
It's just like going into a car dealership and picking out a car you can't
afford to begin with, and then you upgrade to leather seats and a bigger
engine.

Where is the $700B going to come from?  Well, the Treasury simply doesn't
have that kind of money.  So what are they going to do?  They are going to
print it.  Simple as that.  The idea is to "infuse" the system with dollars
to make banks more comfortable with the idea of lending even more money--to
me, you and each other. The trouble in this scenario is that Risk and Impact
are both high.  The risk is that inflation will get out of hand, and the
impact of higher prices in a receding economy is, well, depression.

So why was Congress, both House and Senate, Republican and Democrat, so
eager to push this bill when the vast majority of the electorate said,
"No!"?  I have no idea--unless Congress knows something we don't.

-----------------------

To change your mail settings or leave the C-PALSY list, go here:

http://listserv.icors.org/SCRIPTS/WA-ICORS.EXE?SUBED1=c-palsy