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[quote user="NKP guy"] I've been fascinated by these comments and have not only learned a lot, I've been ruminating on ideas I'm not comfortable with.For decades now I've read similar comments from railfans about the railroad industry and capitalism vs socialism.  I think the past few weeks have been a fulcrum point, a watershed.  All of our theories about the relationship of gov't and the economy are now outdated.  With the intervention today of the federal gov't in the economy we are on new ground.  Just as liberals hate to admit that socialism doesn't work, I think recent events have proved that capitalism (in this case, worship of the "free market") doesn't, either.  Don Phillips is consistently the best writer at Trains magazine.  I abhored John Knieling's views on economics and railroads, but I read his thought-provoking essays.  Phillips disturbs a number of people here, but I agree with his views.  Win a few, lose a few.Politics, economic theory, and railroads are all tied together.  Never in American history were they not related.  We are living through a time when the very nature of Wall Street and the American economy are changing forever.  In the words of an old favorite hymn, "New ocassions teach new duties; time makes ancient good uncouth."  Get ready to see some of your pet economic theories abandonned or junked.  [/quote]I strongly agree with nearly everything you say, especially your point about the last few weeks being a watershed for a big change in the government / economic system.  I would say the earth moved yesterday in regard to our political system.  You said, "Just as liberals hate to admit that socialism doesn't work, I think recent events have proved that capitalism (in this case, worship of the "free market") doesn't, either."  I disagree with the second part of your point.  Much of what follows is covering the same ground that Greyhounds covered five posts back, but it bears revisiting especially because the wool is being so profoundly pulled over the public's eyes on this matter.  Assuming that you are referring to the current credit crisis, it quite dramatically proves that socialism does not work.  It proves nothing about capitalism, however, unless you believe the ones who caused the crisis and their allies in the media when they try to shift the blame onto the lenders who created the bad loans and onto Wall Street who ultimately purchased those loans.  During the V.P. debate, when Gwen Ifill asked Sarah Palin whether the current housing crisis was caused by the lenders or the borrowers.  The correct answer is, "neither."  Here is my simplified explanation of what caused the housing crisis, which is a big driver of the current financial crisis:  The government pressured lenders to make risky loans and then assumed that risk on behalf of the taxpayers.The reason the loans were bad is because the government, through Freddie and Fannie, guaranteed them.  The guarantee meant that the loans did not need to be made to credit-worthy borrowers.  Not only did the government guarantee the loans, but it also pressured lenders to make the loans to people who could not afford them-the so-called sub prime loans.  It may appear as though the lenders are to blame because they made the bad loans, but the creation of bad loans is just the normal business consequence when the government removes financial risk from the lenders, in effect, acting as a co-signer on the loans. Yet many are blaming the crisis on insufficient government regulation of the financial business. On the contrary, the government pressure on lenders to make loans to un-credit-worthy borrowers amounted to excessive government regulation, not insufficient government regulation.  And additionally, the government guarantee amounts to socialism if it needs to be executed and honored, as has proven to be the case.  Basically the government guarantee on all loans opened to door to create bad loans.  The bad loans created a lot of new housing that drove down house values.  So we have an oversupply of housing that has driven its value below the price of its creation.  Yesterday the government bought all that excess housing with taxpayer money in order to take it off the backs of the private financial sector, which was being dragged down by carrying it.  We are being told that when the housing market recovers, those excess houses that the government bought will be put back on the market and sold.  We are told that some houses might even sell at a profit, enabling the government to pay back the taxpayers for the bailout.However, the government's motive that led to the creation of the bad loans was to provide affordable housing, which amounts to housing for those who can't afford it.  To make it affordable, the government takes money from those who have excess and gives it to people who don't have enough to buy a house.  So, as the government holds all the houses it bought yesterday, I don't see a motive for them to hold out for a good price once the market recovers.  On the contrary, the motive will be the same motive that created the crisis in the first place.  That is to sell the houses below market value for the benefit of those who cannot afford to pay market value.  Indeed, there is no motive for the government to make a profit on the houses because, fundamentally, the public sector has no profit motive.  If anything, the motive will be to come back to the taxpayers and ask for more money.  We will be lucky if half the money we gave them yesterday even goes for the intended purpose of buying up the so-called toxic mortgages.  The likely scenario is that the government will hold their houses off the market for a while, not only to allow the market to recover, but to allow time for them to make decisions about the process.  Then the government will burst the dam and allow all their houses to suddenly flood the market at discounted prices.  They will probably even engage in social engineering, setting the house prices according to the ability of buyers to pay or giving similar advantages to the financially disadvantaged, since that was their plan from the very start of this mess.  The sudden influx of discounted housing will drive down the value of everybody's house like nothing we have ever seen in the normal course of free market forces.  Nothing can distort a market like the government can.  I would say that, despite the current housing crisis, this would be the best possible time to sell your house if you consider it to be an investment to any extent.         Here is a chronological outline:1)        The government uses its power to make a guarantee that causes the creation of houses, which their buyers cannot afford.2)        The process creates a bubble of excess housing.3)        The bubble of excess housing drives down all home values.4)        The government uses taxpayer money to purchase the excess housing.5)        With the excess housing taken off the market, all home values rise to previous levels.6)        The government redistributes the excess housing at below market prices.7)        The excess discounted housing drives down all home values a second time.
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