[Marxism] sub prime mortgage mess

[Rakesh Bhandari]

In their book on the three trillion dollar war (misleadingly titled
because that does not include the cost for the Iraqis), Bilmes and
Stiglitz write: "The Federal Reserve sought of course to offset the
adverse effects of the war, including those discussed earlier in the
chapter. It kept interest rates lower than they would otherwise might have
been and looked the other way as lending standards were lowered--thereby
encouraging households to borrow more--and spend more. Even as interest
rates were reaching record laws, Alan Greenspan, then chairman of the
Federal Reserve, in effect invited households to pile on the risk as he
encouraged them to to take on variable mortgages."

Given their own agenda and the weakness in the economy, Bush and Cheney
thought they sell push the war in part as military Keynesianism--
positivistically and morally a horrible way to stimulate the economy,
Stiglitz would argue.

To make up for the absence of real stimulus, to hide the costs of the war,
and to compensate for the drag on the economy from the soaring of the
price of oil in the futures market, the Fed  decided to accomodate the
war.

This seems to be Stiglitz's story.

First, Greenspan reduced interest rates in 2003, though Stiglitz seems to
be suggesting that the time had come to reverse the aggressive cuts in
response to 9-11.

Then the Fed increased rates much less than it would (or should?) have;
Stiglitz seems to be suggesting that the Fed allowed the real rate of
interest to fall.

Finally, the Fed turned a blind eye to the stimulus from overly aggressive
home lending and refis.

I don't think Patrick Bond, Doug Henwood, Steve Palmer have discussed with
the Fed accomodation of this war has been an important factor in the
accentuation of the sub-prime mortgage crisis.

Stiglitz does not elaborate this argument, and it may not stand up to
critical scrutiny.



Rakesh