Understanding the Mess the US Economy Is In

Here are some key bits from a good article by Barry Ritholtz in the Washington Post that examines the last 10 years and explain how the US got into the mess it is currently in:

The debt ceiling is hanging heavy over our heads. But that’s not the only reason it looks dark down here. We’ve got some major and prolonged challenges: ongoing debt issues, structural unemployment, a housing overhang and continued economic frailty.

How did we get here? Well, by way of a financial crisis, stock market collapse, bank bailouts and, of course, the Great Recession — and a good many moments of poor judgment.

Given the drama of the debt-ceiling debate, this is a good moment for investors and policymakers alike to look back over the past decade at the mistakes made by our institutions, private sector and government.

...

1 Rates...

2 The rating agencies...

3 The radical deregulation of derivatives...

4 Subprime loans...

5 Leverage rules...

6 Mortgage underwriting standards...

7 Automated underwriting...

8 Collateralized debt obligation (CDO)...

9a. Glass Steagall...

9b State banking regulations...

10 Fannie and Freddie...

Where does this leave us? We have created an intensely concentrated financial industry, where a handful of banks control the majority of assets. Competition is less than it was before the crisis, and bank fees are creeping upwards.

While risk-taking remains rather subdued, history informs us it is likely to return as the crisis fades in the collective memory. The bailouts left us with a legacy of poor balance sheets and moral hazard. None of 10 factors discussed above have been, in any meaningful way, resolved.

The debt ceiling is the least of our worries.

Go read the whole article.

Sadly, those who need to fully understand the above story, the Republicans, are paying no attention. They belong to the "flat earth society". They want simple logic and they have their "one reason" for the current malaise: too much debt.

The Republicans are not only simple-minded they are hypocrites. If they really believed that the biggest problem facing the US was the debt, then 8 months ago they would not have extended the Bush tax cuts and they wouldn't be so adamant that any "fix" can't include any "new taxes".