His point about how clear it was that the mortgage market was decoupled from all other financial markets is fairly good. In 2004, when the Fed tightened up on money, we all expected the mortgage market to tighten up. But it didn’t. In fact, it got even more loose and heated. That’s when the problem became really obvious. Unfortunately, all Alan Greenspan and the Fed could really do was try to ameliorate the crash. Speaking out about the size, scope and magnitude of the bubble (is a bubble that destroys half the value of the Dow Jones 30 really a bubble?) in the way he would have to do to have any effect would probably have made things worse. Witness the dramatic effect that doomsaying has been having for the last 6 months when Congress Critters, Presidents, etc open their mouths.

Greenspan wasn’t at fault, in the sense that he caused the problem. Nor in the sense that he could have softened the problem. However, the system that believes that a few smart people centrally managing things is better than a market full of people is very clearly and obviously at fault. Greenspan, as one of those “few smart people” simply cannot say what needs to be said. The government caused the problem and doesn’t know how to fix it.

That said, how bad is the problem in the US? Well, we’ve essentially lost a dozen years of wealth production. But 1997 was a pretty good year, the first year I earned over $50K, if I recall correctly. We’ve lost (or are about to lose) 10 years of increase in home ownership, with a return to more traditional levels of home ownership. Oil and gas prices are once again below their 1983 benchmark highs. This year will be likely to have inflation that is nearly flat, or perhaps a very slight deflation. I don’t think it’s as disastrous as the 1930′s, although it feels a lot like the 82-83 recession.

Plenty of signs, in fact, exist to indicate that we are at the bottom of the hole and able to begin a recovery. Only one problem, the Federal government generally, and Obama specifically, can’t keep their damn mouths shut. If they would shut up, step back from the controls for a few months, and let things happen, the recovery from this recession would start and kick into high gear, quite likely.

Of course, if Obama keeps going and can’t keep his mouth shut, we have the potential to spiral right into a depression. All the signs are there for that to happen, too. Obama is much more likely to be the Hoover of that possible depression than the FDR. People never remember that Hoover was an interventionist at least as bad as FDR and that he had established 75% of what FDR eventually did. Obama will be the guy that makes it worse than it had to be. Then, if we are lucky, we will elect another interventionist Republican who will make sure it lasts 8 years too long.

Or ….. Obama will get lucky, keep his mouth shut and have his healthcare plan get stalled and we will recover from the recession.

The most salient difference between the people who dramatically affected the economy from private enterprises and those who affected it from government positions is that government participants employ a monopoly on initiated force.

People affecting the market from government positions use funds that originate from taxes, printing presses, or borrowing against the productive capacity of the people working in private enterprises.

If you’re in private enterprise, try jailing people who choose not to buy your products or services; try printing your own currency when you run out; try borrowing on your claim to your neighbor’s coerced future capacity to produce.

Greedy CEO’s didn’t cause the bulk of this downturn. There have always been those. Speculators who took unwarranted risks didn’t cause this downturn. In the past, over-risky speculation triggered bankruptcy, not bailed outs. People with limited means who bought too much house didn’t cause this downturn. In the past, they just lost the house to foreclosure and bought more wisely the next time around.

The downturn came from corrections to over-leveraging and mal-investment. The extent of the over-leveraging was exacerbated by government policies intended to fix prices, and the moral hazard created by pretending to be able to guarantee all the risky investments.

Generally it was caused – and is being made worse – by people in government positions inappropriately using the ham-fist of government to forcefully try to “adjust” a market with billions of participants. No one is that smart. Not Alan Greenspan, not Paul Krugman, not anyone.

The bubble grew to epic proportions from 2002 to 2004, and into 2005. We are now seeing the foreclosures that are the result of ARMs adjusting and balloon payments coming due.

The rate dropped at the end of 2110 and beginning of 2002 in an effort to jump-start the economy. If he had pulled back on the reigns in say, 2003, he would have stalled the economy or, if he had raised the rates in 2004, it would not have done much good, because by then, the property values had inflated enough that there still would have been a crash.

Maybe the fall would have arrived earlier, because the illusion that was the housing bubble would have become obvious and thus popped sooner, but maybe not — it is the ARMs that are causing problems now, as well as the job market.

As it stood, though, Fannie and Freddie had to back many, many, many mortgages that they should not have touched, simply because Congress said so. Because F&F were willing to back the loans, banks made more of them . . . . but we all know the spiral.