"A generation which ignores history has no past--and no future."

The title of this post is by Robert A. Heinlein--a visionary science fiction writer, who, through the course of his long and prolific career, predicted many of our current societal woes.  Including the current financial...turbulence.

1929 brought us Black Tuesday, probably the worst stock market crash in history.  Black Tuesday brought a run on the banks, a government mandated bank holiday (read: forced closing and reorganizing of financial institutions), and a depression that lasted into WWII.

1987 brought us another stock market crash: Black Monday.  One of the main reasons that this isn't part of our national memory is because, while the market lost, and lost huge, all over the world, it didn't turn into the same type of long-term depression that 1929's crash did.  

Yesterday, it was stated that the current turbulence was "the worst financial crisis since the '30s, with no end in sight."

While I will admit that it's bad now, and we could be headed into another market crash that rivals Black Tuesday, I also have to say that that day is not yet.  The market's been gaining and losing and gaining back 4-5% per day this whole week.  On October 28, 1929, the Monday before the day listed in the history books, the market lost 13%, immediately followed by another 12% on October 29th, the infamous day that saw brokers committing suicide by leaping from upper story windows on Wall Street.  That's a total loss, over a two day period, of a full quarter of the market's value.  

We're nowhere near that.  Yet.  And there's still hope: Congress is currently saying that, a) they're going to recess because no one is sure quite what to do, and b) that they're going to buy the most toxic assets that are currently causing financial institutions to go belly up and the market to tank.  

I advocate the first option mentioned.  It is, after all, the fault of government intervention that the economy is in its current straits with the sub-prime mortgage industry collapsing and causing a domino effect.  

In the early '90s, the federal government expanded regulations that were intended to encourage minority home ownership.  The problem with this was that there were good reasons most were denied loans: they had nothing saved for a down payment, they didn't have sufficient income to make the payments, and payments they had weren't made on time.  This made them bad risks for loans.  

The federal government decided that redlining people who were otherwise ineligible wasn't because they were bad risks, but because they were minorities, twisting the motivations for denying the loans from good business to racism.

We're currently seeing the results of such policies.  The portion of the economy that's currently having the trouble is the sub-prime mortgage industries, and the securities backed by sub-prime lending.  It's not the traditional mortgages--the 20% down, 30 year, fixed rate mortgage--that's dragging us down.  It's the nothing down, super-high, adjustable interest rate mortgages that carry options that include not paying principle that are beginning to collapse the market.  Those who opt for such insanely stupid mortgages are beginning to default as interest rates reset, or payment options (such as the interest-only payments, or the only 1% of the 7-10% interest rate payments) reset.  Those who only were able to get the loans through the interference of a well-meaning government that didn't take possible consequences of their "kindness" into account.

No, I'm not saying it's the sub-prime consumers' fault.  It's not their fault at all that these insanely risky terms were made available.  Once again, it's the responsibility of the federal government.

Now, the best action for the federal government to take to "fix" the problem would be for it to step back, repeal the regulations forcing financial institutions to make the risky loans, and let the market correct.

Not that I think they'll do the right thing.  Not in an election year, and not with their candidate facing stiff competition in the race for the first time since it started two years ago.  And in my opinion, this goes for both sides of the aisle: neither candidate has it locked up, and neither candidate's economic plans are something that the people trust.  Unfortunately, the government is so far out of touch that they really don't realize that the market, overall, doesn't want another bailout.