As an amateur, I have a warm glow inside to find that my untutored sense about the credit crisis is in tune with the Nobel Laureate economist Joseph Stiglitz. From an interview here.
He is appalled that the banks have expressed "not a note of gratitude" about the funding and subsidies they have received from taxpayers "without which they would not exist", and that they have had the cheek to turn around and say that they don't have enough money to lend to small businesses or would-be homeowners, but that they have to spend vast sums of money raised from often hard-up taxpayers on obscene bonuses – amounting to $33bn in bonuses in the US alone. This perverse redistribution of income from the poor to the rich, a gigantic reverse exercise in the usual Robin Hood approach, is unprecedented in human history. The US government, Stiglitz says, was reduced to the role of garbage disposal service for the banks' toxic assets, bad loans and worthless securities they themselves had created. Why, Stiglitz asked, did the White House under Bush and Obama spend so much on keeping the banks going but so little on helping struggling homeowners, a policy that would have helped keep a roof over their heads, slow the slide in property values and protect the banks from the fundamental cause of their troubles, the crumbling value of securities based on those residential mortgages: "The current crisis has seen the government assume a new role – the 'bearer of risk of last resort'. When the private markets were at the point of meltdown, all risk was shifted to the government. The safety net should focus on protecting individuals; but the safety net was extended to corporations, in the belief that the consequences of not doing so would be too horrific. Once extended, it will be difficult to withdraw. Firms will know that if they are sufficiently big and their failure represents a sufficient threat to the economy – or if they are sufficiently politically influential – the government will bear the risk of failure."
He advocates a counterattack on the speculators, by raising interest rates and intervening in the stock market.