[ExI] undercover at Walmart

[BillK]

On Sun, Feb 22, 2009 at 4:44 PM, Rafal Smigrodzki wrote:
> ### You are mixing up a lot of things. The financial difficulties are
> caused by misallocation of resources, not by "artificially inflating
> the value of everything" (Did you think it through to what you really
> mean there? Can you spell out the meaning of this statement?). The
> CRA, and other government regulations pushed banks into lowering
> underwriting standards (moving resources, manpower, materials into too
> much home construction, away from useful activities and artificially
> increasing home prices) which caused increased risk to be injected in
> to the system and induced regulatory arbitrage (trying to circumvent
> capitalization requirements ) that led to massive use of credit
> default swaps which in turn introduced valuation uncertainty (the
> increased risk was not properly accounted for since nobody knew how to
> calculate risk on default swaps and few people knew of the incredible
> amount of fraud committed by homebuyers) and then many institutions
> got poisoned by counterparty risk. Add to it moral hazard ("we are too
> big to fail, the gov't won't let us die" - which turned out to be
> true) and you get a mildly impaired banking system. Add to it further
> massive gov't intervention, massive increases in future taxes which
> poison the investment climate by increasing uncertainty ("will they
> take 70% of what I can earn or only 50%") and yes, everything
> eventually could go to shit.
>


Yup. I agree with all that.
That's the long version of what I said.
The US deficit created inflated values all round the world,
(via completed methods such as you described).


BillK