The origins of this credit crunch reside in the housing market. Big banks bought up a lot of sub-prime mortgages, then bundled them into portfolios that could be sold downstream as reliably income-producing assets. Thus mortgage debt was "securitized," made into something hedge funds and private equity firms, and even stodgy mutual funds, could buy into as an investment, not as a side bet. When the housing market flattened out (prices and construction began to fall & foreclosure rates rose) over the last two years—even with interest rates relatively steady—this mortgage debt suddenly looked dubious.

The bubble burst, in short, when everybody realized that the long-term inflation of residential real estate prices, which started about a decade ago, was over, maybe even in Manhattan.
Why did this huge investment in subprime mortgages take place, and why should dismal forecasts on the housing/mortgage market affect all others? The short answer to the first question is George W. Bush's tax cuts

The rationale for these cuts came from the supply-siders - Investment, productivity, and employment will increase if you augment the incomes of those who do the saving and investing. These already wealthy folks will acquire a new monetary incentive to invest in goods production if you raise their disposable incomes by cutting their taxes. That investment will in turn produce larger payrolls and more taxable incomes, thus canceling the revenue-reducing effect of the original tax cuts.

Then as now, these supply-side arguments have two defects. First, the history of the 20th century is the record of increasing productivity and output as functions of declining net investment. Economic growth doesn't require greater investment after 1919, in other words, so it certainly doesn't need higher profits or executive incomes. In fact, any shift of income shares away from labor and toward capital—any shift away from consumption and toward saving or investment—will be a cause of crisis, not of growth.

For if higher profits aren't needed for investment in goods production (the "real economy"), they will force their way, as unruly surpluses, into the available speculative sites, for example into the stock market of 1926-29. Or into "high-end consumption." Or into subprime mortgage lending. Whatever.

The recent private equity mania ("leveraged buy-outs" of publicly traded companies) exemplifies these three tendencies of overwhelming capital surplus, as Ben Bernanke often said before he took up his more taciturn duties at the Fed

The stock market has not been as reliable as long-term investors and short-term scalawags alike would want. The dot.com bust still spooks everybody except me, but I'm the historian who compares it to the crash of 1901-02. And how many yachts can a rich man steer toward his own private coast of utopia? Where else to turn? To the housing/mortgage market, of course, the available speculative site where prices were surging after 1995, even after the stock market tumble of the turn of the century.

Second, tax cuts have never caused increased investment—not in the 1920s, not in the 1960s, not in the 1980s, and not in our own time. The empirical record is uniform: net investment keeps falling no matter what

That list of items usually happen when a Democrat is about to take over the White House.

Of course, if you look back, the media told us we were in recession in 2006, but when the final numbers came in they were wrong, so they predicted it for 2007, wrong again. Think they have a slim to none chance of getting it correct for 2008, unless of course Hillary wins the election.

All this negative talk, just leads to negative results.

How many of you are actually going to put your money where your mouths are?

Revised numbers * back in 2000 showed the recession started in Clinton's term. Guess you like to forget the little piece of history.

However, when you think positive from within, like you preach about medicine, then good times will continue. All this negative talk, just leads to negative results.

here is a great article about the economic impact of bush's incompetence...
http://www.vanityfair.com/politics/feature...7/12/bush200712