http://www.harpers.org/archive/2008/02/0081908
The next bubble:
Priming the markets for tomorrow's big crash
By Eric Janszen
A financial bubble is a market aberration manufactured by government,
finance, and industry, a shared speculative hallucination and then a
crash, followed by depression. Bubbles were once very rare—one every
hundred years or so was enough to motivate politicians, bearing the
post-bubble ire of their newly destitute citizenry, to enact legislation
that would prevent subsequent occurrences. After the dust settled from
the 1720 crash of the South Sea Bubble, for instance, British Parliament
passed the Bubble Act to forbid “raising or pretending to raise a
transferable stock.” For a century this law did much to prevent the
formation of new speculative swellings.
Nowadays we barely pause between such bouts of insanity. The dot-com
crash of the early 2000s should have been followed by decades of
soul-searching; instead, even before the old bubble had fully deflated,
a new mania began to take hold on the foundation of our long-standing
American faith that the wide expansion of home ownership can produce
social harmony and national economic well-being. Spurred by the actions
of the Federal Reserve, financed by exotic credit derivatives and debt
securitiztion, an already massive real estate sales-and-marketing
program expanded to include the desperate issuance of mortgages to the
poor and feckless, compounding their troubles and ours.
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