Related Articles: What Should Uncle Sam Do?
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You Call this a Depression?
Robert J. Samuelson 7/23/2008 12:00:00 AMThe specter of depression stalks America. You hear the word repeatedly. Are we in a depression? If not, are we headed for one? The answer to the first question is no; the answer to the second is "almost certainly not." The use of "depression" to describe the economy is a case of rhetorical overkill that speaks volumes about today's widespread pessimism and anxiety. A short history lesson shows why.
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INSIDE BUSINESS
Seeing Shades of the 1930s
Daniel Gross 7/19/2008 12:00:00 AMOn Tuesday and Wednesday, Federal reserve chairman Ben Bernanke, a scholar of the epic financial meltdown of the Great Depression, and Treasury Secretary Henry Paulson, a survivor of more recent Wall Street crises, told Congress of their latest efforts to rescue the financial sector. If Fed chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin and his deputy Lawrence Summers were known as the Committee to Save the World during the financial crises of the 1990s, today's duo may go down as the Committee to Save Wall Street From Itself. For the past several months, the Fed and the Treasury Department have pulled all-nighters dealing with three-alarm fires, from the demise of Bear Stearns in March to the rising concerns over the mortgage giants Fannie Mae and Freddie Mac.
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Yet Another Domino Falls
Jeffrey E. Garten 7/19/2008 12:00:00 AMThe recent travails of Fannie Mae and Freddie Mac, America's two largest mortgage companies, have created new reasons for global markets to be nervous. These two government-created and -supported organizations buy residential mortgages that are extended by banks and then securitize and sell them in global markets. Given that there's already a housing crisis in the United States and that Fannie and Freddie together hold about half of the country's $12 trillion in mortgage debts, their ability to keep borrowing at low rates is critical to the pricing of mortgages going forward. That borrowing, in turn, will have a lot to do with Washington's ability to keep mortgage prices from rising, causing the housing market to weaken further. And that will be key to keeping consumer spending from collapsing and clobbering U.S. trading partners.
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Today’s ‘Culture of Poverty’
Daniel GrossFor decades, social scientists, policy wonks and politicians have studied and debated what's come to be known as the culture of poverty. The consensus: a class of Americans is set apart from the mainstream by geography, class and income. Its members adhere to norms that don't apply to the rest of society, and engage in self-destructive behavior that imposes significant costs on the nation at large. The culture of poverty has made for potent politics (remember Ronald Reagan's fictitious welfare queen?) and spawned best-selling polemics from the right (Charles Murray) to the left (Jonathan Kozol).
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INSIDE BUSINESS
Ways We Can Fix This Giant Mess
Robert RubinChair of Executive Committee of the Board of Citigroup and Former Clinton Administration Treasury SecretaryAlthough I and others saw financial excesses developing, hardly anyone anticipated the full combination of factors that has now led us into uncharted waters. You had the underweighting of risk, low interest rates, the faulty AAA ratings of some subprime-mortgage-backed securities, extended good times—which led to a loss of caution—and "financial engineering," the creation of complex instruments that even many sophisticated investors didn't fully understand. It's unclear how serious the resulting economic strains will be, but I think the risks are high enough that we should be highly proactive.
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BUSINESS
Borrowers Are Out In the Cold
Daniel GrossDavid Stoyka, a senior account executive at Marx Layne & Co., a public-relations firm in Farmington Hills, Mich., was surprised to receive a letter in January from Countrywide Financial Corp. The mortgage lender had frozen access to his $25,000 home-equity line of credit, on which Stoyka and his wife owe about $16,000. "I had never missed a payment, and have excellent credit," he says. But with housing values declining, wary lenders are turning off the spigots, even to residents of tony Grosse Pointe Farms.
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