Talk:Crash of 2008

A couple naive questions

Real estate prices skyrocketed through the roof around the world in the 2000s. There seems to have been real estate "speculation" going on everywhere. Is there a chance that the situation in the U.S. is merely the catalyst for exploding a financial situation that was risky everywhere? Is anybody saying that? I don't know, that's why I ask.

Everybody talks about the cause of the problem being deregulation, or lack of regulation. But isn't this an indirect cause at best? The direct cause is what the lack of regulation permitted to happen, namely, the real estate price bubble created by real estate speculation, based on ultra-low interest rates and zero-down loans. And if Fannie Mae and Freddie Mac--government-created entities--and the U.S. federal government actually permitted and encouraged that such loans be made, then isn't the problem not lack of regulation, but instead the wrong kind of regulation? Again, is anybody saying that?

It seems to me that the usual analysis of these events as I casually read in news reports is misleading and simple-minded. (So what else is new?) I hope we can do better--of course, without doing any "original research." --Larry Sanger 15:03, 12 October 2008 (UTC)

YOu are asking difficult questions, Larry. My answers are as follows: In some countries, deregulation proceeded at a very high rate from the early 1980s. The degree of risk in banking activities increased most in those countries where the dogma of free markets had the most political support -- primarily the USA and UK. The reduced level of regulation was supposed (according to proponents of deregulation) to increase economic growth without disproportionate risk, since private sector banks are managed by educated and knowledgeable people who would not want to risk their money any more (and arguably less) than governments would risk public money.

The problem with this line of reasoning is that we are structurally dependent on banks, so we cannot allow too many of them to collapse. Therefore, some commentators (even from the banking sector) argue that banks believed that the risky activities undertaken by them would in reality be underwritten by governments -- simply because we need banks in the capitalist system. If this is true, then the effect of deregulation was asymmetrical: that is to say, that we removed our controls over banks, but were unable to remove our obligations to banks. In this scenario, deregulation is the primary cause of the problem.

Of course, it is literally the case that nothing was completely deregulated and more accurately was re-regulated: the term deregulation indicates the level of control by the state being reduced, in line with neoliberal political ideology.Martin Baldwin-Edwards 15:57, 12 October 2008 (UTC)

The question which the article ought to clarify is this: if deregulation per se (and not different kinds of regulation) had anything to do with the crisis, the lack of exactly what kind of regulation is to blame? What is the mechanism of failure? --Larry Sanger 16:03, 12 October 2008 (UTC)

I'll leave it to Nick, but my immediate answer would be bank reserves to lending ratios. On top of that, all sorts of other risky stratregies emerged over the last decades to recycle money -- which in previous years would have been prohibited. Martin Baldwin-Edwards 16:09, 12 October 2008 (UTC)

Yes there was house price inflation in other countries, in many cases steeper than in the US. I have tried to indicate what seems to have set things off on the US in the article (under construction) on the subprime mortgages crisis. For the rest of the world, the subprime crisis was merely the shock that toppled an extemely unstable system. I believe that Goodhart was right in suggesting that any serious shock would have done it. Perhaps you are right in suggesting that the bursting of some other country's housing bubble could have set it off. But the US housing market was, of course, the biggest...

Deregulation, in my opinion, was not the cause but rather a necessary condition for the creation of all those clever financial instruments, as well as placing limitations upon the ability of central banks to do something about their misuse. It is hard to say whether it would have happened under the previous regulatory system, but I guess it would not.

To say that any particular thing was the cause is indeed simple-minded. In so complex a situation, it is a logical error to speak of causes rather than contributory factors. It is the relative importance of the different factors that will need original research. The rest is not all that obscure. Nick Gardner 16:16, 12 October 2008 (UTC)

Identifying what was wrong with the regulatory system and what is needed to put it right is indeed difficult - and certainly far beyond me. World experts have devoted tens of thousands of words to that question [1] without producing straightforward answers. It might take decades! Nick Gardner 16:25, 12 October 2008 (UTC)

A strange thing I seem to be seeing here in Chicago is that amidst all the predictions of doom and gloom, Help Wanted signs are everywhere, and at my current employer we are so busy I can hardly get a day off. I'm not sure what wages are being offered by these prospective employers, but...

I guess I'm failing to be as pessimistic as perhaps I should, but it looks to me as if the folks who are becoming dissappointed with the economy at this time have the common complaint that their investments are not yielding as much gain as they had hoped. Now, I don't want to minimize the importance of someone's retirement fund losing "money", but to me this seems not so different from their homes "value" declining.

That said, here are my "naive questions":

• Isn't the real value of a house that it is a home? Does anyone really forsee millions of working-class families living on the streets while millions of houses sit empty for lack of someone who can pay some astronomical price for them? When home "values" and "prices" once again come into alignment won't people simply start buying them again?

• Does someone who sought to make substantial profit by simply buying and reselling (as opposed to say, building or even buying and maintaining for commercial purposes) really deserve to be the one handsomely rewarded?

• Doesn't it seem as if things have become a little confused recently? How many homes will the typical person sell this year? If a particular person is _not_ going to sell their home, won't a reduction in the appraised value of the property basically just mean lower property taxes typically?

• Is it really true that the sky is falling?

--David Yamakuchi 17:34, 18 October 2008 (UTC)

David: I am not putting myself forward as the man who has all the answers. I have my own opinions on these matters, but in drafting the article I was merely acting as a reporter. I am very willing to discuss the content of the article here, but if you want to debate broader issues with me, it might be better to do it somewhere else. Perhaps on my talk page [2]? Or by email? What do you think? Nick Gardner 20:54, 18 October 2008 (UTC)

Drawing a line under the article

Because it - seems to me - it would be a pity to allow this article to ramble on and on in the style of Wikipedia, I suggest that we consider "drawing a line" under the present text and continuing the story elsewhere - including the article on banking failures and rescues, but also perhaps a new article on the economic fallout. This does not, of course, exclude necessary work to correct, sharpen and clarify the existing text. Nick Gardner 22:12, 13 October 2008 (UTC)

That sounds like a pretty good suggestion to me. Hayford Peirce 23:15, 13 October 2008 (UTC)

Notes on using the subpages to this article

I gotta say that I really don't like this sort of Aside to the Reader sitting so uncompromisingly in the text. I realize that it contains useful information, but I wonder if there isn't a less obtrusive way of getting it across? Hayford Peirce 23:17, 13 October 2008 (UTC)

Encouraged by that remark, I have made a change that I had been itching to make! Nick Gardner 05:35, 14 October 2008 (UTC)

Formatting question and a suggestion

Hi Nick, I think you're using the wrong formatting in at least two instances, in which you have, I guess, used blockquote formatting to indent two long summaries that you have written. My understanding of the matter is that blockquotes are only supposed to used for actual *quotations*, such as the Paul Krugman quote that I inserted into the lede. To use them elsewhere causes needless confusion for the reader -- he thinks that he is getting a quotation but is actually getting normal text. Why not simply remove the blockquotes and continue the text in normal fashion, as is the case in other CZ articles? Hayford Peirce 23:07, 15 October 2008 (UTC)

I didn't know about "blockquotes" and I have not used them. I indented the two passages because I thought it important to distinguish other people's statements from statements made on behalf of CZ. But if that is not permissible because it breaks a CZ rule, I should be content for you to make the necessary corrections. Nick Gardner 06:04, 16 October 2008 (UTC)

Okie, I removed the indent formatting. Hayford Peirce 15:45, 16 October 2008 (UTC)

"Recession of 2008"

I think we need to continue this melancholy story in a new article. I have proposed the title "Recession of 2008" with the intention of changing it when a colloquial term emerges. Nick Gardner 07:32, 16 October 2008 (UTC)

I don't think any other term will emerge, unless, sigh, it turns out to be The Great Depression of 2008. I wonder, though, if in speaking at least of the United States, you shouldn't wait until there is an officially declared recession. I think there are standard specs for defining one.... Although I suppose that if England, Europe, etc., declared themselves to be in a recession, that would be enough. Hayford Peirce 15:49, 16 October 2008 (UTC)

Economists don't need empty-headed politicians to tell them when there is a recession. I would recomment that some academic reference be provided for any sceptics. Martin Baldwin-Edwards 15:59, 16 October 2008 (UTC)

The San Francisco Fed chairman thinks we are already there [3]. Will that do? Nick Gardner 16:09, 16 October 2008 (UTC)

Don't forget the old quip that goes something like: "Economists have predicted nine of the last three recessions." Hayford Peirce 16:54, 16 October 2008 (UTC)

Do you want to bet she's wrong? I'll give you good odds. Nick Gardner 20:26, 16 October 2008 (UTC)

I just heard that Germany predicts zero growth for 2009: this is officially a recession for the world. Martin Baldwin-Edwards 21:29, 16 October 2008 (UTC)

The definition is not simple [4] Nick Gardner 14:27, 18 October 2008 (UTC)

The UK Q3 growth rate was negative. Unless it goes positive in Q4, we shall be technically in a recession. That would make an honest man of me! Nick Gardner 18:18, 24 October 2008 (UTC)

At least from the perspective of the U.S. of A., here's part of today's Business Section column by Floyd Norris:

• "The Federal Reserve Bank of Chicago maintains an index, called the National Activity Index, which in the past has nearly always signaled the beginning of a recession when it fell to a certain level, shown as negative 0.7 in the accompanying chart. It hit that level last December, and has stayed there since.

• "This week, the Fed released the reading for September, which was the worst for a single month since 1982 and a sign that the recession is deepening....

• "And yet it was not until last month that many economists began to think a recession was likely, and many believe it began in the third quarter of this year, rather than many months earlier....

• "A major reason for that delayed acceptance of the downturn was that the government initially reported the economy grew at an annual rate of more than 3 percent in the second quarter. That has been revised down to 2.8 percent, and may yet be revised lower some months from now. In any case, other factors are considered by the National Bureau of Economic Research, which makes the final decision. In the last two recessions, the downturn was over, or almost over, when the bureau finally decided it had begun.

Is this the end of the story?

I am inclined to believe that this story is now complete, and that we can soon start to consider its submission for approval. To that end, I urge all who are interested to subject it to critical scrutiny. Nick Gardner 20:33, 21 October 2008 (UTC)

The opening paragraph

It occurred to me that yesterday's description of the crisis by Alan Greenspan would be a good replacement for the rather feeble "is very severe" in the existing paragraph. Having inserted Greenspan's aphorism, I realised that it made the comparison with 1929 redundant, so I deleted it. (I had previously discovered that the 1929 crash had very little in common with the present crisis, in view of which the implied comparison of what follows with the Great Depression seemed unnecessary and unfortunate). Then I realised that what had been the topical flavour of the paragraph back in September no longer sounded right, so I did some more redrafting with a view to restoring its topicality and economising on its subordinate clauses.

Any comments? Nick Gardner 08:04, 24 October 2008 (UTC)

I think that's a good rewrite. I've done a little tweaking to smooth it out. Hayford Peirce 15:28, 24 October 2008 (UTC)

Odd

In this long article, not a single mention of Fannie Mae and Freddie Mac--the failures of which probably have the best claim to being the catalyst of the crash. --Larry Sanger 15:39, 24 October 2008 (UTC)

easy to correct, but the question is where to put it -- in the lede paragraph? If so, might that not be a little too much "inside baseball"? How many people outside the USofA have ever even heard of them? But a good point to bring up, of course. Hayford Peirce 16:16, 24 October 2008 (UTC)

You may be right, Larry, but my research seems to indicate that news of Fannie Mae's problems came out after that of Bear Stearns' - although there had been rumours (denied by Fannie Mae) that came out a little earlier [5]. Commentators at the time seemed to believe that it was the Paribas statement the triggered the credit crunch. It is difficult, of course, to compare the serious damage done to mortgage-lenders by suspected defaults, and the wider range of damage done by the credit crunch - and I may have got the balance wrong. As things stand, I agree that Fannie Mae and Freddie Mac are mentioned only on the subpages. I will consider putting a reference to them in the main article. Nick Gardner 16:26, 24 October 2008 (UTC)

Speaking from outside the USofA: I got sick and tired of Fannie and Freddie being on the news day in day out.--Paul Wormer 16:54, 24 October 2008 (UTC)

Who knew, hehe? Hayford Peirce 16:57, 24 October 2008 (UTC)

They sound to Europeans like a middle-aged married couple going through a divorce, rather than serious banking institutions... Although their "misfortunes" are seen by many as central to the crash, I doubt that history will agree. It is also irrational to think that the failings of two national lending institutions could bring down global finance on their own; it is questionable whether they are worth more than a footnote in this article. Martin Baldwin-Edwards 17:02, 24 October 2008 (UTC)

I followed the news about their failure and bailout closely, and indeed it seemed to be very basic conventional wisdom that their failure and nationalization was one of the flashpoints of the broader market reaction to the mortgage finance crisis. Obviously the failure of these two (albeit incredibly powerful and huge) institutions isn't enough to "bring down global finance on their own," but that isn't the claim. What the article should say is, at least, what almost everyone agreed upon: their failure and nationalization got people in derivatives and then the broader market very very worried. This is why I use phrases like "catalyst" and "flashpoint," and that is a fact that I doubt history will revise. That is why, clearly, they need not just a footnote, but a paragraph or a whole section in this article. --Larry Sanger 20:07, 24 October 2008 (UTC)

While I'm not sure they are "central to the crash", I do they they are more than a footnote. The crash seems to have a number of components: (i) bubbles in the US/UK/Spanish housing market, associated with over-ambitious lending practises in at least the US, and a poor job by the credit rating organizations, etc; (ii) overuse of leverage by many financial institutions, many in the US but also elsewhere; (iii) growth of complex financial instruments (principally but not entirely mortgage-backed securities) which are hard to value and assign risk to; (iv) a giant, opaque and unregulated market in various financial insurance instruments (the credit-default swaps) - and that's just off to top of my head. But the US housing bubble - of which FNMA/Freddie-Mac are a big part - is definitely a big part of the problem, because those securities were part of many of the other problems, e.g. ii) and iii).

I don't think there's be any single major 'flash point' that caused it all; rather, it's like an unstable slope, where when things finally get too steep, it only takes one pebble to start the whole thing cascading down; it starts small, and just grows and grows. Yeah, some incremental additions may be bigger than others, but they are just pieces of a bigger thing. J. Noel Chiappa 21:28, 24 October 2008 (UTC)

Conventional wisdom (of the 1980s and 90s) is what got us into this mess in the first place, so I am not convinced by that argument in the slightest. The principal issue is the failure of banks to self-regulate, which neoliberal politicians assured everyone was completely safe when recklessly deregulating the entire sector. The importance of specific failures, such as Freddie and Fannie, is probably confined to their greater vulnerability: to focus upon them is misleading and inappropriate. That almost everyone does, shows how incompetent the commentators are. Thus, a footnote is clearly needed: more can be justified, but it should be minimal to avoid overstating the importance of them. Martin Baldwin-Edwards 00:13, 25 October 2008 (UTC)

Nope, that won't fly, Martin. Obviously, the burden of proof rests on he who wants to overthrow the conventional wisdom. Your argument appears to be that this financial collapse is so complete that it utterly overturns everything--black is white, night is day, conventional wisdom deserves only little attention. If you have something more substantive to say about Freddie and Fannie, as opposed to vague dismissals, that would be interesting.

Frankly, I just don't understand what the resistance would be. The conventional wisdom is well supported and is not irrational in the slightest. Freddie and Fannie were specifically ordered by Congress to buy up risky mortgages and make it easier for lower-income people to get into housing...that was the culture of ownership stuff Bush touted throughout his first term, but definitely supported, even driven, by the Democrats. In the U.S., Freddie and Fannie served as a sort of informal insurance company in the case of bad loans...they absorbed all sorts of risky debt. I had a student loan that was bought up by Fannie Mae--well, not that it was risky debt.  ;-) This made it possible for lenders to be a little looser with their money (which is to say, with their depositors' and investors' money). That no doubt had something to do with the rise of subprime lending, etc. When the backers of this whole house of cards folded, everybody knew the game was up.

I agree that there might not have been a single flash point, but there was definitely a few highlights that more or less brought everything to a head. --Larry Sanger 02:24, 25 October 2008 (UTC)

Let's get down to specifics in terms of the article. Fannie and Freddie are a key and leading part of the thing that most of the article tries to explain. I.e., when we refer to the Crash of 2008, we aren't referring just to the crash of stock markets or housing prices, but to everything related to that, and especially to the mortgage business. So where the discussion of Fannie and Freddie belongs, obviously, is Crash of 2008#The crisis, which is desperately in need of development: there, we should describe exactly of what the crash of 2008 has consisted of, with Fannie and Freddie, bank failures, stock market crash, etc. Odd we don't have all that business when that is the Crash of 2008 itself, y'know... --Larry Sanger 02:32, 25 October 2008 (UTC)

I think it's important to distinguish between the crash (by which I mean the international banking panic which created the credit crunch) from the subprime mortgages crisis (which was something that occurred in a relatively small part of the American market). I still believe that it was the discovery of the threat that mortgage-related assets posed to the survival of Bear Stearns that prompted banks all over the world to look at their assets, discover that a lot of them were based on subprime mortgages that might be worth a lot less than they thought - and panic. It does not seem plausible to suppose that troubles at Fannie Mae or Freddie Mac could produce that reaction - even setting aside the fact that Fannie Mae was denying they had a problem at the time of the Bear Stearns crash. Undoubtedly, the subprime crisis triggered the crash, and undoubtedly Fanny and Freddy played a big part in that crisis, but I think it would be misleading to suggest - even obliquely - that it would not have happened but for them.

Getting down to specifics, I believe that the place to describe the part that they played is the article on subprime mortgages crisis. They were referred to there, but only as government sponsored agencies. I have spelled their names out there and added a sentence about their collapse. Nick Gardner 09:41, 25 October 2008 (UTC)

I agree completely, Nick. Larry is pushing the line (which I have noticed before, in other articles) that journalistic accounts are so important that they take priority over (ot at least take equal place with) expert analysis: clearly that is a non-starter. The only point that might arise from the journalistic coverage, is to set people (like Larry) right in the CZ article about what is incidental and what is substantial or structural in the global crisis. This can be done in a footnote stating that the role of the subprime collapse (esp. Fannie and Freddie) seemed central to many US commentators, but was neither the cause of the Crash nor a necessary catalyst. Martin Baldwin-Edwards 10:10, 25 October 2008 (UTC)

I basically agree with your analysis, Nick, but have only one comment. As I (imperfectly) understand things, FNMA/FHLMC played a major role in creating those toxic mortgage securities that other banks held, by buying those subprime home loans from the originators ['Later correction': I now gather that they didn't in fact buy any subprime home loans, but only better-grade - but that may not be important, since there seem to be indications that losses in the prime home loans are going to be an ever bigger problem - JNC], and reselling them on (often packaged up into mortgage bonds directly), and adding a perceived US Govt guarantee in the process. In addition, of course, without FNMA/FHLMC buying those loans from the originators, the capital of the originators wouldn't have been replenished, to allow them to make more subprime loans. So while the losses incurred by those who held FNMA/FHLMC stock may not in and of themselves have been a big hit, the sub-prime mortgages that passed through FNMA/FHLMC, and the securities based on them (and I don't know to what degree FNMA/FHLMC 'guaranteed' any of those bonds) were a big factor. Does this sound correct? J. Noel Chiappa 13:19, 25 October 2008 (UTC)

I am not at all sure about the degree to which they were responsible - it may not be fully known until the subject has been trawled over by committees of enquiry empowered to cross-examine the staff of the banks that were involved. But from what I have read, I guess that it is probably right to describe their role as "major" - but not, I would suppose, "majority". Nick Gardner 14:45, 25 October 2008 (UTC)

Everything I've read so far bears out Noel's analysis -- at least from today's perspective. Since none of us are historians writing with perfect hindsight from 50 years in the future, I do think that something along the lines of what Noel has written should go somewhere into the article. It may be that in the *long* run, the Frannie-Fred stuff will be as meaningless to the reader as similar detail about specific bank failures/takeovers/problems in 1930 and 1931 would be to the average reader of 2008. But the article can be rewritten to reflect this as the decades go by.... Hayford Peirce 17:04, 25 October 2008 (UTC)

Whereas none of us has hindsight, there is no reason to accept as "fact" some journalistic accounts. Since none of you is reading economists' accounts, then all you are citing is journalism. Sorry to tell you, but it is a load of **** ( as usual). My understanding is that the actual exposure to bad debt is fairly limited, and the crisis is actually more to do with structural change. It is a matter of interpretation of where blame lies.

This brings me to a second and MAJOR issue. If the fault lies primarily with subprime mortgages, then the policy conclusion is that socialistic intervention is a disaster. If the fault is primarily structural, and related to deregulation, it means that the neoliberal policies of USA, UK and others in the last two decades are a disaster. Although there is some role of mortgages in this, I see no reason to let the mistaken policies of governments off the hook. I also see that many people with extreme wealth at stake are trying this little trick, and fooling a lot of you. After all, global economics is very complex, so there is no reason why you should be able to understand it. So, as an economics editor, I ask you to desist from putting pressure on our authors to toe an American (neoliberal) line. Nick should be allowed to write an expert analysis, and also benefit from any other economists who wish to contribute. For non-experts, please assist with comprehensibility issues, but really you do not understand enough to comment on the analysis itself. Martin Baldwin-Edwards 20:59, 25 October 2008 (UTC)

There are journalists and there are journalists. There are quite well-respected books on previous economic events by journalists who covered them - as there are on myriad other subjects on which 'mere journalists' have written books. People like David Leonhardt of the New York Times may not be professional economists, but nonetheless are not worthless hacks.

Second, nobody (AFAICT) is saying governmental policy mistakes should be ignored. (E.g. in my list above of what I saw as the fundamental causes, failure to regulate the market in financial insurance instruents - such as the infamous CDS's - was clearly listed as a major one. Even regulators like Cox of the SEC are now admitting they failed on that one [6].) J. Noel Chiappa 14:20, 26 October 2008 (UTC)

FWIW, in the process of doing some research for Nick on the mortgage crisis, I turned up this column by Krugman which is on F+F's role in the US part of the mortgage crisis. J. Noel Chiappa 15:48, 26 October 2008 (UTC)

PS: Before anyone declares victory, let me point out this and this, which contain quotations from actual economists indicating that the 'sub-prime' market is likely to be a small share of the entire problem, which has spread into the 'prime' market too. J. Noel Chiappa 16:06, 26 October 2008 (UTC)

When trying to restore a sense of proportion in my mind about all this, it occurred to me that Paul Krugman's summary captures its essence. The trigger was, as he said, the sudden discovery of poisonous assets on the balance sheets of banks all over the world - and the crash was what followed. All the rest is secondary. How they became poisonous is not hard to understand. The details of how they got there are - but understanding them is like the pattern on a picture frame - interesting but inessential. And if Paul Krugman finds them "fiendishly complex", I shan't be mortified if I never get to understand them. I shall go on trying, and I will try to summarise my findings in the subprime mortgages article, but I am against putting them in this article. The search for a single cause for the crash is bound to be fruitless, but as Martin suggests, the question of how the banks were allowed to put themselves in a position to inflict such damage is the principal one that has to be tackled if we are to avoid a repetition. ...said Nick Gardner (talk) 04:09, 26 October 2008

Experts and amateurs

Okay, I think the suggestion of listening to the experts for expertise and the laypeople for understandability is a good one.

Going back to Hayford's post of the 24th--a lot of people outside the USA have not heard of Fanny and Freddie, and the ones who have have little idea of who these two are. Other institutions seem much more significant in the crisis: AIG, all those investment and non-bank banks which when I was graduating school seemed like the way to assure wealth. I have a hard time attributing problem mortgages in the US with a worldwide crisis; people playing with money they don't have causing a crisis makes much more sense.

In the shire next to mine, the Corporation lost a whole lotta money because they'd been told that a Lehman Bros. fund was safe as....well, they'll never see their money again. That makes sense to me: invest in f firm that goes bust, you go bust. Lots of firms going bust=crisis. A government-invented entity buying up private mortgages in the US going bust=part of the crisis.

I also fully support Hayford's post supporting Nick's analysis.

Oh, what do I know, anyway?

I'll only add that when our daughter asked what was going on and I tried to explain, probably badly, husband jumped in with much clearer explanation. He said nothing about Freddie or Fannie, and we all got it.

Aleta Curry 11:15, 26 October 2008 (UTC)

I also don't think that Fannie and Freddie were a sole, or even a leading cause. But I do think that they were a major catalyst--especially in the U.S.--that started the system spiraling out of control. The fact that you're not so familiar with them is, well, a fallacy; it proves nothing. It is a completely undisputed fact that they are huge players in the U.S. mortgage industry--if you didn't know that, now you do--and hence their failure has been a key component in the credit crunch in the U.S.

Martin, I'm not impressed (and never have been) with out of hand rejections of common analyses of a situation just because they happen to have appeared in the press. That is also a fallacy (it's called "poisoning the well"). Besides, if it is a matter of enlightened-experts-vs.-benighted-journalists, many of the people interviewed by journalists, who make it clear that the banking panic was greatly influenced at least in the U.S. by Fannie Mae and Freddie Mac, are more expert (they are, of course, economists) than anyone here. Shall I dig up a few examples of journalist interviews of/reportage about expert economists (who else) about the influence of Fannie and Freddie on the international financial crisis?

I am not impressed by posturing about who is and isn't qualified to contribute. As the leading expert about CZ's policy, I hereby rule such questions out of court. What's that you say? I'm not allowed to do that? Actually, I agree. My expert standing does not allow me to quell debate.

Again, I think part of the confusion here is that we need to be much more explicit in the article about what we mean by the "Crash of 2008" beyond "the international banking panic," i.e., merely the failure and near-failure of some banks. For example, are we saying that the international stock market crash is part of this crash, or not? Or is it something explained by the crash, which occurred only in the banking sector? If the entire weakening of the financial system (not just banking) is not part of the topic of the article, I think that with "Crash of 2008" we are just appropriating an overbroad term for our topic. Maybe something like "Banking Crisis of 2008" would be better?

All that aside, can we all agree that somebody needs to expand the section called "The crisis"? --Larry Sanger 12:53, 26 October 2008 (UTC)

If you want, ignore everything I've said above, and focus on this: the failure of Fannie and Freddie are an important, leading part of the crash in the U.S. This important fact needs to be in the article. Will someone please add it? --Larry Sanger 13:00, 26 October 2008 (UTC)

Not me. Nick Gardner 13:57, 26 October 2008 (UTC)

Larry: you are out of order. You do not have the authority over content in specialised subject areas. If you want to destroy CZ, then go ahead and insist on amateur knowledge taking priority over area experts. You will not get the support of the Editorial Council for such a position. I do not wish to quell debate: I am insisting on a minimum standard of expertise in grappling with this article. It should be clear that the principal author here has general expertise in applied economics, and he has done high-quality investigation of this topic. His findings are consistent with my less detailed knowledge of the situation. If anyone with serious economic knowledge wishes to enter the debate and to contest some of the content, this is fine. What is not fine is to harass us with newspaper reporting that does not match scientific analysis.

Furthermore, it is not a fallacy that journalism is of low quality, with rare exceptions. I have had disputes with you about this before. I have never met anyone who is a world authority on any topic who thinks that journalistic accounts are of acceptable quality: my own experiences of how journalists distort and manipulate to suit their own agenda is very clear. You may not accuse me of "poisoning the well" which I find an offensive slur. The fact is that we expect serious articles to be based on serious sources, and newspapers are not such. End of discussion. Martin Baldwin-Edwards 14:39, 26 October 2008 (UTC)

I hate to argue with you about this Martin, but are you telling us that Paul Krugman, New York Times columnist and recent recipient of the Nobel Prize for Economic Sciences is a "low quality" source? You can't really be serious! Hayford Peirce 17:01, 26 October 2008 (UTC)

You do not prove a general rule by finding one or two exceptions. It may well be that Krugman is writing good stuff on the topic, but I am talking about run of the mill journalism. Martin Baldwin-Edwards 19:05, 26 October 2008 (UTC)

"Out of order"? Please. I stand by everything I say, Martin, and I encourage you to actually read it. Anyway, I must move on to other things now. As editor-in-chief, all I want to insist on at this point is that as a matter of our official policy, non-experts may continue to debate all issues on this talk page, and they should not feel intimidated by suggestions to the contrary. Over and out. --Larry Sanger 15:07, 26 October 2008 (UTC)

"You are out of order." Martin, we don't use such language on CZ. Nobody declares other people "out of order," as if this were a court. I'd also comment on your own style, but that is inconsistent with CZ:Professionalism and belongs in e-mail.

"You do not have the authority over content in specialised subject areas." I wasn't taking authority over specialized subject areas. I was raising a question (why no mention of Fannie and Freddie), arguing my case (above), and making a suggestion (why not add in some mention of this as part of the crisis in "The crisis" section). None of this, and none of the other things I said, were or were meant to be an exercise of Editor-in-Chief authority. Moreover, I have to say that I resent the uncharitable suggestion that I was exercising such authority.

"You will not get the support of the Editorial Council for such a position." I wouldn't dream of taking this dispute to the Editorial Council, and the fact that you think I might demonstrates how little you understand the dynamic here, at least on my end. Unlike those who might suggest that only experts should be able to comment on the article's content, I do not regard disputes as grounds for a constitutional crisis and a power struggle. I regard them as grounds for reasoned discourse.

"I do not wish to quell debate: I am insisting on a minimum standard of expertise in grappling with this article." Forgive me for not understanding, then. This sounds like a self-contradiction. How am I wrong? When you say "I am insisting"--and who are you to insist on this, Martin, by the way?--"on a minimum standard of expertise in grappling with this article," it sounds as if you are saying that debate about the fine points of what the article says is out of bounds for non-experts. In that case, how do you not wish to quell debate? And, in my capacity as Editor-in-Chief, I am instructing you that this is all completely incorrect as a description of CZ's policy.

"It should be clear that the principal author here has general expertise in applied economics, and he has done high-quality investigation of this topic. His findings are consistent with my less detailed knowledge of the situation." I am not at all questioning Nick's expertise, or even yours. I am asking you to justify what seems to me a very puzzling omission. I'm also asking someone, anyone, to finish writing the section that actually describes the subject of the article--the crash itself--as opposed to all the explanations thereof. Also, by the way, and at the risk of being pedantic, there are no such things as "principal authors" here on CZ. Hence, challenges to the article are not to be taken as challenges to "the authors" of the article, or their credentials, but rather, challenges to a shared text (which itself is "beyond credentials"). Still, I am very tempted to ask some other economists to come here and work on our--not Nick's article, not your article, but our--article.

"His findings are consistent with my less detailed knowledge of the situation. If anyone with serious economic knowledge wishes to enter the debate and to contest some of the content, this is fine." It is also fine if someone with less than serious economic knowledge to contest the content, particularly if he or she can mount a cogent argument. Again, this is and always has been our policy, and please do not suggest to the others here, Martin, that it is not.

"What is not fine is to harass us with newspaper reporting that does not match scientific analysis." First, asking questions and making arguments does not constitute harrassment. As soon as an editor can credibly claim that it is, this is no long the Citizendium but instead an Expertpedia which is barely tolerant of hoi polloi. Second, I was not "harassing you" with newspaper reporting, but with arguments. The arguments, as I have said at least twice, are made by expert economists in the U.S. (To be clear, my claim was that there are many expert economists in the U.S. who believe that the policies and subsequent collapse of Fannie and Freddie was an important factor in ushering in the financial crisis in the United States. And the weakening of the financial system in the U.S. obviously had a contributory effect on the weakening of the financial systems in the rest of the world.) I did not present you with a single press report, but I admit that the press is where I learned about the events. And you didn't learn about them from the same source?

"Furthermore, it is not a fallacy that journalism is of low quality, with rare exceptions. I have had disputes with you about this before. I have never met anyone who is a world authority on any topic who thinks that journalistic accounts are of acceptable quality..." First, my argument does not rest on the claim that journalism is not of low quality. It is a straw man to suggest that it does. I do not rely on press reports for my opinions; I rely on arguments, as well as the expert opinions that, it so happens, are reported by news articles. Martin, you are the one who brought up the business about the press and its unreliability. I raised questions and made an argument. Second, as to the merits of the claim, "journalism is of low quality," this is a fallacy insofar as it is so vague as to be incapable of evaluation. When the press reports what the prime rate was set at, or what the Dow was at the end of the day, such facts can be relied upon. When a reporter transcribes what an expert says, then with a few caveats e.g. about context, we can assume that that is what the person said. And, of course, when a reporter suggests a simple-sounding cause of a complex phenomenon, such reportage should be taken with a grain of salt at best. -- Moreover, all of this is obvious. You need not advert to the attitudes of "world authorities" to know all this; any good high school or college student knows it very well.

"You may not accuse me of 'poisoning the well' which I find an offensive slur." Nonsense--no, it's not. To accuse someone of committing a fallacy is not a "slur." As long as it is done in a temperate way, with no suggestion about negative personal qualities of the person committing the fallacy, it's fine. We all commit fallacies on a shockingly regular basis. To point this out is perfectly consistent with CZ:Professionalism.

"The fact is that we expect serious articles to be based on serious sources, and newspapers are not such." First, if you mean to say we should never cite newspapers, you are wrong both on principle and in point of CZ policy. We can, do, and should cite newspaper reports when appropriate. The question is, of course, when it's appropriate. If we wish to give readers a pointer to a more in-depth description of a recent event, we might send them to a news report from The New York Times or The Times of London. We don't cite the opinions of reporters and columnists (oh...unless they are Paul Krugman, right?) for things like broad historical explanations of financial collapses, but we might cite them for clear quotations from experts, or for data about when various events took place (e.g., when Fannie Mae was bailed out). Second, Martin, please stop making dogmatic-sounding and blanket claims about CZ policy--about what "we expect"--especially to me, when you know I disagree with them.

I hope this helps. If you'll leave well enough alone, Martin, that will be the end of the debate for me. --Larry Sanger 16:05, 26 October 2008 (UTC)

Larry, I am not going to respond to all of those points. The most important things to note are the following: (1) newspaper analyses are unreliable, and need expert interpretation if they are going to be used at all. As a matter of academic principle, they should not be used except for simple factual information or accurate reporting of expert views. (2) Although CZ does not recognise "principal authors" -- mainly because you opposed some attempts to do exactly that -- this is the reality "on the ground" for many articles, including this one. Without Nick, there would be no article worth discussing. (3)Asking questions and engaging in a dialogue about the answers is fine, and should be unrestricted. My problem with the discourse here is that several of the non-expert participants here (including you, Larry) were telling Nick that his analysis was wrong, or incomplete. As an economics editor who has not contributed to this article, I decided to weigh in and protest on his behalf. (4) There is, and always will be, some tension between expert authors and non-expert authors on CZ. For many articles, that tension can be resolved simply by debate and explanation, and perhaps revisions where needed. However, in this specific case there was a clear problem that the non-experts were in complete disagreement with the two experts. If you can attract more economists to participate in this debate, then Nick and I would actually be grateful. Nick has been trying for some time to attract more expert economists to CZ: this is not an issue of article "ownership" at all. The problem with the "cogent arguments" being presented here is that they are, in Nick's and my judgements, serious distortions of the actuality. Who is to rule on this? Obviously, only an economics editor can do so. That is not the role of Editor-in-Chief, especially as you were advocating specific changes to the article and thus became a party to the dispute. Martin Baldwin-Edwards 16:36, 26 October 2008 (UTC)

On (2), I maintain that CZ is a fully collaborative project. That is why we can have no principal authors. Also, this is a point we have never debated, as far as I know. We have only debated how to test and possibly implement a program to give credit to authors on article pages. Granted, there are people who are mostly responsible for a given article (I have a number for which I'm solely or mostly responsible myself), but this does not mean that they are "principal authors" with all that typically entails in terms of rights, control, and honor. I agree that without Nick, there would be no article here (or a much smaller and worse one), and we should of course honor him for that. As to (4), you thought that I was insisting on my view about the content of the article in my capacity of Editor-in-Chief; as I said, I am not. I do not concede your claim that the Editor-in-Chief (and the Editorial Council?) does not ultimately have authority over content questions, but that is an issue for us to deeply clarify and debate another day. As to the other points--the less the said the better at this point. --Larry Sanger 17:12, 26 October 2008 (UTC)

We are in full agreement concerning all of your last post. Also, I had not meant to imply any rights associated with the de facto "principal authorship" -- merely to point out that it is one person's expertise that has produced this article. Martin Baldwin-Edwards 17:55, 26 October 2008 (UTC)

several of the non-expert participants here .. were telling Nick that his analysis was wrong, or incomplete - This puts a spin on some comments made here that this particular commenter never intended - which I had hoped I made clear by using phrases such as "As I (imperfectly) understand things" and "Does this sound correct?". Rather, I was trying to bring some points forward in the discussion, and asking (not "telling") if there was anything to them. Is this not the very "Asking questions and engaging in a dialogue" you spoke of? J. Noel Chiappa 18:18, 26 October 2008 (UTC)

Your humility in this discussion was noted and appreciated, Noel. Martin Baldwin-Edwards 19:08, 26 October 2008 (UTC)

Recession

Just read the opening again after a hiatus and it makes good sense to the layman.

Could one of you define 'recession' and add it to the glossary? I can't.

That reminds me--there's no recession article--did we ever settle it as to whether or not the wiki pointed to a definition if there is no full article yet? Aleta Curry 03:12, 25 October 2008 (UTC)

Point taken. I will do both a definition and a very brief article. Nick Gardner 06:26, 25 October 2008 (UTC)

PS: See Recession (economics) - Nick Gardner 10:48, 25 October 2008 (UTC)

The role of Fanny Mae and Freddy Mac

Could we please take a break from debating CZ policy issues, and return to the origin of the dispute - namely Larry's contention that Fanny Mae and Freddie Mac probably have " best claim to being the catalyst of the crash". My refusal to put that in this article was based solely upon the absence of evidence for it. I am (reluctantly} willing to accept that it is the received wisdom in the US, and that that places the onus for refutation upon people, like me, who contest it. But, with Noel's assistance, I have searched for its origin in NYT articles (see the subprime mortgage crisis talk page). I could not find it there. Where should I look? Nick Gardner 22:36, 26 October 2008 (UTC)

Not that it's important, but it's Fannie and Freddie :-) Martin Baldwin-Edwards 22:49, 26 October 2008 (UTC)

I just looked through some back articles by Paul Krugman and didn't find anything like that either. Or at least not in so many words. I think that the *perception* in the US of the failure of the two FMs was in large part psychological. But at least in the States, that certainly led to even greater mistrust of other financial institutions. Hayford Peirce 01:01, 27 October 2008 (UTC)

Ha! Martin Baldwin-Edwards 01:33, 27 October 2008 (UTC)

Actually, as I mentioned in my detailed comments below, it does appear (see the timeline) that the velocity of the crisis did accelerate substantially (definitely in the US, and to some degree elsewhere as well) with the bailout of FNMA/FHLMC. I'm not sure what that means, if anything, but I think this can be taken to mean that the failure was important to the markets, if not to the underlying economics. J. Noel Chiappa 12:29, 29 October 2008 (UTC)

Glossary Subpages

I put the glossary on the related articles subpage, and Aleta moved it to a glossary subpage - so I did the same with the glossaries of several other articles. Now Larry has moved it back to the related articles subpage.

I don't care in the slightest where it goes as long as it is accessible, so I leave it to Aleta and Larry to get together and do whatever further editing they think fit. Nick Gardner 07:12, 27 October 2008 (UTC)

Well, Aleta and I might need to discuss whether Related Articles subpages really should serve as glossary subpages. With the {{r}} template, I intended that lists of related articles, together with definitions, would just naturally be glossaries. So, theoretically, you should be able to sort/reorganize (as necessary) the words in your glossary as parent topics, subtopics, and related topics (probably, most are "related topics").

Of course, if the system turns out not to be used in that originally intended way, I can't complain too much. --Larry Sanger 22:36, 27 October 2008 (UTC)

I don't intend to get involved in this. I was content with the way it was, but I shall now leave it to you and Aleta to change (or not) the various articles in any way you wish. Nick Gardner 23:03, 27 October 2008 (UTC)

Well it doesn't make any sense to have a visible subpage called Glossary and have the glossary somewhere else. If the idea is to put glossaries on Related Articles pages, then you should arrange to have all subpages called Glossary removed so that nobody goes there to look for a glossary. It seems that there is still some way to go to standardise use of subpages, and there should really be guidance somewhere for authors on these issues. (I sense that Nick is a little irritated over this issue) Martin Baldwin-Edwards 00:26, 28 October 2008 (UTC)

Those can easily be removed by blanking the tab1 field in the metadata. I can do that. I agree with Larry that the related articles, if well done, should double as a good glossary too. Chris Day 00:52, 28 October 2008 (UTC)

It does seem to me that a glossary might include terms that aren't worthy of an article (I assume we have a similar policy to the Other Place, and don't have articles which are basically just dictionary definitions), and thus wouldn't be appropriate for "Related Articles". If so, that means that the RA list can't really fully subsume the role of the glossary... J. Noel Chiappa 14:51, 28 October 2008 (UTC)

Good point. So the key is whether to have the glossary independent with a fair amount of overlap between the glossary and the related articles subpages. If that is the case, I would like to suggest that the glossary be maintained as a subpage of one of the parent articles and that every article that uses that glossary transcludes it to a glossary subpage from the parent article. i had experimented with something similar once before. I feel it is key to have only one copy of the glossary if possible, otherwise we have to maintain multiple glossaries that are very similar, if not identical. Chris Day 21:36, 28 October 2008 (UTC)

I just set up an experimental version of a more global glossary that could be used by all the financial articles at Economics/Glossary. For example it is mirrored here at Crash of 2008/Glossary. I am not saying this is how it should be done, it is an example. Under this scheme, where in the article hierarchy the glossary goes is debatable. Obviously as it goes lower in the hierarchy it becomes more narrow in its terms. The problem with one as high up in the hierarchy as Economics is that it could become huge. Finding the right article to host a shared glossary is key and probably an editorial decision. Chris Day 22:05, 28 October 2008 (UTC)

Random thought for the day (nothing to do with Crash 2008): Some mirroring like this might even be useful for related articles pages. For example, when I was editing some of the planet pages the amount of overlap is huge. Why not have one location rather 12 or more different locations with the exact same list of related articles? Chris Day 22:13, 28 October 2008 (UTC)

It looks as though this issue needs more debate. Would you like to take it to the Forum, Noel? We do need to develop clear guidance for authors on subpage use, and there even seems to be doubt among the CZ "oldies"...Martin Baldwin-Edwards 15:42, 28 October 2008 (UTC)

In my copious free time! :-( I'll add it to the 'to-do' list, sigh... J. Noel Chiappa 12:31, 29 October 2008 (UTC)

Here Noel. http://forum.citizendium.org/index.php/topic,2385.msg18122.html#msg18122 Chris Day 14:31, 29 October 2008 (UTC)

Nomination for Approval

I have started the Approval process, with about 10 days to go. This is to allow time for dissidents to express their dissatisfaction with the article (provided that there is proper evidence of legitimate dissenting views) and for any necessary rewriting. I will also go through it carefully, for possible minor slips as well as typos etc. Martin Baldwin-Edwards 00:58, 28 October 2008 (UTC)

I wonder if we shouldn't have a preparatory stage in the approval process (which I had to go re-read, to make sure my memory of exactly how it worked - blasted thing is slightly complex) which is more or less 'this article is going to be nominated 'soon', please come make sure it's OK'. My thinking is that technically, if any changes are made to an article once it has been nominated, the nominating editor(s) have to update their nomination to the new version, otherwise the version that gets approved is the version they first nominated. Yes, the process as written works, but it's more work for the nominating editor that it could - and therefore should - be. Given the difficulties we seem to have with getting articles approved, surely we should make that hurdle as low as possible? J. Noel Chiappa 14:59, 28 October 2008 (UTC)

The reality of approvals is as you advocate: the only problem is that it is not clear to new editors. It is not a major issue to update the link for specific version approval; we can also advise the Constabulary of which version should be used (by time and date). Martin Baldwin-Edwards 15:26, 28 October 2008 (UTC)

The section about the crash itself

I'm afraid I can't agree with this article, as excellent as it is, being approved in its present form, because it strikes me as incomplete. The section about the crash itself--what it is--is called "The crisis." That section consists of a single paragraph. Most of the article consists of explanations, contributory factors (i.e., more explanations), consequences, and remedies. But there's very little in the section that purportedly describes the phenomenon explained and to be remedied.

Please consider this objection by itself on its merits, independently of who made it and of what I have said along similar lines above. We need not rehash all of that. Indeed, the point seems independent of any particular expertise: generally, if you want to write an article about an event or phenomenon, it should have a lot of information about the event or phenomenon itself. The point itself seems to me to be very clear and capable of being hashed through on its own merits (if necessary).

If you like, think of it on analogy with the Crash of 1929; imagine an article that had huge amounts of information about the explanation of the crash, its consequences, and its remedies, but hardly anything about the events of the crash itself. --Larry Sanger 00:59, 28 October 2008 (UTC)

I agree that the section on the crash needs elaboration. Obviously, Nick took for granted that we all know roughly what has been happening. Remedying this deficiency is not so difficult, since it is largely descriptive. I suppose I cannot offer to do it, as I would then be unable to approve the article. Martin Baldwin-Edwards 01:07, 28 October 2008 (UTC)

Wow--thanks for your support. We all might know what has been happening, but a person who consults an encyclopedia article (perhaps years in the future) about the crash might not. And we're writing for them. --Larry Sanger 01:09, 28 October 2008 (UTC)

In other words, we gotta do this so that it says, "On Feb. 3, 2008, all was well in Lotus land, the Dow Jones was at 12,345, ppl were still buying houses, and then -- boom! By October 27, major banks were in ruins, the two FMs had disappeared, the world's financial structure was melting down, etc., etc...." I certainly agree with you, Larry. NO article should assume that the Little Old Lady From Dubuque knows anything about nutting.... Hayford Peirce 03:33, 28 October 2008 (UTC)

No problem. I will draft a proposed expansion of that paragraph - although I don't guarantee to get through to Hayford's little old lady! (where is Dubuque?).Nick Gardner 14:52, 28 October 2008 (UTC)

I have now made a first stab at a revised crisis paragraph. I realise that it is too dense for the little old lady, but I hope that it will present no difficulties to the "educated layman" that I take to be the typical CZ reader. Comments will, of course, be welcome. Nick Gardner 17:08, 28 October 2008 (UTC)

It's a definite improvement, but still lacks detail...names, dates, numbers... --Larry Sanger 18:57, 28 October 2008 (UTC)

Some of that is already in the timeline, which is probably a better place for details anyway, no? J. Noel Chiappa 19:05, 28 October 2008 (UTC)

I thought of that, but I can't agree. The timeline is an adjunct to, not a replacement for, content that might otherwise be expected to be in the main article. It would be like saying that we might not report the blow-by-blow events of a famous battle in the article itself, instead putting them in a timeline. Surely it's OK for there to be redundancy, but if the account of the battle is to be anywhere, it should be in the article about...the battle! --Larry Sanger 21:44, 28 October 2008 (UTC)

A few (apparently) key dates and events should probably appear in the intro (with a reference to the timeline for more details). Martin Baldwin-Edwards 19:26, 28 October 2008 (UTC)

I have tried to meet those points. It gives a backward-looking tenor to that paragraph that I had thought to defer for a few months. I think that there will be no escaping the need to change the tense of more of the text - and insert some more dates - as time goes on but, after trying it in earlier drafts, I gave up the practice of writing about current events as though they had happened in the past. (But I guess that it will not be long before we can give up saying that we are only tentatively calling it a recession?) Nick Gardner 21:20, 28 October 2008 (UTC)

Some comments on the current version

Hi, here are some comments from reading through the current revision. I think the overall structure is pretty good, with two caveats: i) I concur with the one above, about needing more content about 'what' happened, and not just 'why', and ii) I think the intro section could be a little longer (although perhaps if you all agree with my second point, dealing with that would handle this). Anyway, specific comments:

• "spread rapidly" - I'm not so sure about the "rapid". The subprime blowup was well under way a year ago (that Senate report on the SP mess which Nick linked to is from October '07), and if you look at Talk:Subprime mortgages crisis#Confession and invitation (the title of that article might be a misnomer, now that I think about it, because the problem has spread from subprimes into other forms, and the total dollar amount in mortgage-related losses in the US outside sub-primes sounds like in the end it might well be larger than inside - but I digress - more later) you will see people getting antsy about the (much-debated) FNMA/FHLMC back in the spring. Also, the article mentions Paribas back in August '07. Is stuff that happened over the course of a year or so 'rapid'? I don't feel that's quite the appropriate word. The velocity of the crisis did seem to accelerate at the end of summmer of '08, though, as the (excellent, by the way) timeline clearly indicates - an acceleration which seems to have started with the failure of FNMA/FHLMC (how amusing, given the heated debate a few days ago).

I don't feel strongly about this, so I have deleted rapidly. Nick Gardner 08:26, 29 October 2008 (UTC)

• The opening para makes it sound like the US housing bubble, and the losses it inevitably caused in all kinds of mortgages, is the only place there are problems in the global system, and the problems elsewhere are all basically because of losses in US mortgage-related securities held by institutions in those countries - but is this accurate? First, I seem to recall that there were housing bubbles in the UK and one other EC country (Spain?); and the problems in Iceland seem to be as much too much foreign debt for the economy as a whole, not just losses in mortgage-related securities by their banks. I don't have time to go country-by-country and research local contributory factors, alas. Note: I am not trying to absolve US responsibility, because US mortgage-related securities surely are a huge factor. I just want to make sure the article is accurate. Second, even in the US (and I suspect elsewhere as well), there are other factors, such as the overuse of leverage in an attempt to jack up rates of return; the lack of transparency and regulation in things like CDS's, etc. How important these were, compared to the housing bubble, I'm not sure is fully understood at this point.

I agree, and I have redrafted the opening so that it points to the part played by the weakness of the worlfd financial system (which in my openinion made a more important contribution). In my opinion, the Krugman quote also gives the misleading impression that the subprime crisis was the inevitable and only cause of the crash - and I should like to remove it. Nick Gardner 08:26, 29 October 2008 (UTC)

Well, the quote isn't a bad one - the housing bubble did have the effects he indicated. The question I guess is 'does it give an inaccurate impression'. I would deal with that by putting a few more sentences in before the quotation, explaining that there were a number of factors, and the bursting of the housing bubble was the thing that brought them all to light (or, caused the crisis in synergy with them). Alternatively, I would not mind if you removed (or at least moved) the quotation - maybe it could be moved to an article on the US housing bubble? J. Noel Chiappa 13:16, 29 October 2008 (UTC)

Yes! If no-one objects, I will move it there. I agree that it is not a bad quote - I think it very good. Nick Gardner 07:03, 30 October 2008 (UTC)

• "world recession" -> "world-wide recession" - the latter sounds more natural to me, but the former is OK I guess if people really like it.

• "fallout from the United States subprime mortgage crisis" - repeat previous point about how the mortgage problems have spread from sub-prime mortgages to others. The October '07 Senate report was predicting losses of $100B in the sub-prime area - but the total losses in mortgages are now predicted to be much larger than that, I seem to recall? (A number here would be good, but I don't have one on hand.) I think it's more accurate to describe it as a bubble in housing valuations - that is really the root cause of the problem. I don't think sub-primes in and of themselves could have caused the magnitude of what we are seeing now. The deflation of that bubble started in sub-primes, but has since spread. (In general, I think we are saying "subprime mortgage crisis" when what we really mean is "US housing bubble".) The rest of the text in this section looks fine, though.

I agree that the term "subprime mortgage crisis" is inaccurate for the reasons you give, but it has become so colloquial that we can hardly avoid it. Nick Gardner 08:33, 29 October 2008 (UTC)

You have a good point there. At the same time, I don't think we should be propagating inaccuracies. We could use the term "housing bubble" or "mortgage crisis", if you think people would recognize that as well as they recognize "subprime mortgage crisis". J. Noel Chiappa 13:16, 29 October 2008 (UTC)

• "securities became so unreliable" - I think a better way to put it is 'became impossible to put an accurate and dependable value on these securities'.

You've got a point, but I was trying not to depart unnecessarily from the words used by President Bush. Nick Gardner 08:38, 29 October 2008 (UTC)

Hardly the most articulate of people, though, eh? :-) J. Noel Chiappa 13:16, 29 October 2008 (UTC)

If you can find a better statement of the US government's position on the matter, I will consider using it. Nick Gardner 11:36, 30 October 2008 (UTC)

I'll talke a look and see what I can find. J. Noel Chiappa 13:37, 30 October 2008 (UTC)

• "Contributory factors" - may this should be "Other contributory factors", because the previusly-discussed housing bubble is a big one? Oh, I see, the mortage mess is listed at the end. The "Contributory" made it sound like 'Additional'. Is there are better word?

As you have observed, the material under that heading covers all of the contributory factord including the subprime crisis. I can't think of a better word (does it matter?)Nick Gardner 08:47, 29 October 2008 (UTC)

Hmmm (ponders). How about "causal"? I think the pair together (i.e. "causal factors") captures what you meant, and more pithily than some other alternatives (e.g. "originating factors"). J. Noel Chiappa 13:16, 29 October 2008 (UTC)

I've done a bit of pondering and come up with "Principal causative factors". OK? Nick Gardner 11:01, 30 October 2008 (UTC)

Sounds good. J. Noel Chiappa 13:37, 30 October 2008 (UTC)

• Also, IMO we should list as a discrete factor the increased use of leverage, in an attempt to boost rates of return - I gather the low capital ratios at places like Lehman, FNMA/FHLMC were a big factor in their failures. "Attitudes to risk" is of course related, but the leverage/rate-of-return issue isn't mentioned there. I have no opinion on whether we should expand that section, or create a separate one for leveraqe. Oh, I see, leverage is mentioned "Financial innovation", but I would have thought that should mostly cover the rise in complex derivatives, off-balance-sheet accounting devices, etc. Oh, the poor job of credit-rating agencies should also be mentioned as a separate bullet, no? They are mentioned in "The subprime mortgage crisis", but do they deserve a bullet of their own?

I'll come back to this. Nick Gardner 09:00, 29 October 2008 (UTC)

This is difficult. I agree that the leverage/risk issue is important, but it seems too complex for this article. I may deal with it in the banking article and put in a link to that article. Nick Gardner 10:59, 29 October 2008 (UTC)

The thing is that excessive leverage is such an important factor in the crisis that I think we have no choice but to say something about it here, even if it's only at a relatively elementary level. In some sense, over-use of leverage was perhaps the most wide-spread single factor in the crisis - e.g. the people who took on mortgages where the principal was too large for their ability to service it were also over-leveraged. It was a disorder present from top to bottom of the system... J. Noel Chiappa 13:16, 29 October 2008 (UTC)

Point taken. I have strengthened the wording of the text and added a note with a link to the Banking article, where I will try to set out the rationale of the statement in simple terms. Nick Gardner 11:36, 30 October 2008 (UTC)

I also accept that the role of the credit-rating agencies was significant (although not crucial). The trouble is that I don't know why they got - or the banks - got it wrong, so I wouldn't know what to say in a separate bullet on the subject. (The fact that they were paid by the banks puts suspicions in my minnd that I don't think I should put in the article!) Do we want to burden the reader with speculation on this? Nick Gardner 10:59, 29 October 2008 (UTC)

Let me see what I can dig up on the credit-rating stuff. I think there's no question but that it played a role - a lot of institutions wouldn't have bought those securities unless they were rated well - and clearly, a lot of them were rated inaccurately (see, for example, the non-subprime securities in this story). J. Noel Chiappa 13:16, 29 October 2008 (UTC)

Thanks: I have no doubt about its importance, but I do not want to make accusations that are not backed by authoritative evidence. Nick Gardner 11:36, 30 October 2008 (UTC)

• In general, I feel that this entire section could use a substantial editing pass to make sure each sub-section covers one specific point.

I'd be happy to do a draft version of this for people to look at if you would like. J. Noel Chiappa 13:16, 29 October 2008 (UTC)

OK. Nick Gardner 11:36, 30 October 2008 (UTC)

I'll see if I can do this this afternoon. J. Noel Chiappa 13:37, 30 October 2008 (UTC)

• "Regulation" - This section should probably mention the lack of transparency and regulation in the CDS market. (I'm still boggled that what was basically an insurance business was utterly unregulated, unlike housing, life, etc insurance which are generally regulated to make sure there are adequate assets to cover most any levels of losses.)

• "Attitudes to risk" - the back part of this section is a bit jargony, and could use a rewrite to simplify/clarify the language.

What jargon? I accept there is some in the quote, but some authority for the statement seems necessary and I don't know of another. My use of the word securitisation is justified by the explanation of the term in the previous paragraph. Nick Gardner 10:41, 29 October 2008 (UTC)

Let me take a crack at a rewording, which I'll stick here for you to examine; hopefully that will make what I'm trying to get at a bit clearer. J. Noel Chiappa 13:16, 29 October 2008 (UTC)

• "Consequences" - I wonder if there is more to be said here? Certainly the credit crunch and a recession are the 'big two' outcomes, but are there more? Or is it still to early to see them clearly?

Too soon, I guess. Nick Gardner 11:36, 30 October 2008 (UTC)

• "coprehensive" -> "comprehensive"

• "power to remove "toxic assets" from the financial system,." - I would expand this a bit, to say in plain words that the plan was to buy up those mortgage-backed securities and other complex derivative instruments for which, because they were/are hard to value and assign risk to, there were/are no functioning markets to either i) value, or ii) dispose of (for those who needed to sell assets) them. It should also be made explicit that this 'indirect' support (buying these assets) plan didn't satisfy the market, because it was seen as likely taking too long to implement, hence the change in direction to follow the UK lead, and provide capital directly to banks (in the form of purchase of preferred shares, I seem to recall is what the US is doing).

I have put in a reference for those who wish to pursue the matter, but the subject is so complex that it some would find further explanation confusing - and it is not, I think, a matter of overwhelming importance. I'll maybe expand the brief article on the Paulson plan to cover your points. Nick Gardner 09:06, 29 October 2008 (UTC)

Hmm, let me ponder that. I guess I find the "remove" grating - they aren't getting rid of them, just holding them for a while. Could we at least say something like 'power to buy "toxic assets" from financial institutions which were carrying them, unable to sell them, and hold them until their value becomes clear', or somesuch? J. Noel Chiappa 13:16, 29 October 2008 (UTC)

• "The crippling of the world financial system by a minority of defaults in a small corner of the United States economy has been seen as an reminder of that system's inherent instability." Same comment as at the top, about other factors in places outside the US. Also, the world economic system was already under stress, because of the runup in prices for raw materials, etc - a correction was happening anyway because of those.

I had change this by inserting "triggerd by". The other factors you mentioned were causing economic - but not, I think, financial stress. Nick Gardner 09:00, 29 October 2008 (UTC)

Anyway, hope this is useful. J. Noel Chiappa 16:23, 28 October 2008 (UTC)

Message received with thanks, Noel. It is getting on for close of play here, but I plan to go through your points tomorrow. Nick Gardner 17:16, 28 October 2008 (UTC)

No rush - take your time. (No reason for anyone to get stressed out over CZ - if you need some extra days, take some extra days! It's not like we have to have the article done by day X.) J. Noel Chiappa 17:54, 28 October 2008 (UTC)

OK. I just didn't want you to think I was putting it on the back burner. Nick Gardner 21:24, 28 October 2008 (UTC)

Timeline

Nick and Martin: I did some futzing about on the timeline page and embedded some comments. I stopped in case I was on the wrong track altogether. Have a lookie at your leisure. Aleta Curry 22:07, 28 October 2008 (UTC)

The opening paragraph (again)

In response to one of the above comments by Noel - with which I agree - I have changed the wording of the opening paragraph. Also. I have brought it more in line with the (amended) following paragraph by moving it into the past tennse. I should like also to drop the "provisionally" clause, and the Krugman quote (which, as discussed with Noel above, I now realise may give the misleading impression that the subprime crisis was the sole cause of the crash). Nick Gardner 10:11, 29 October 2008 (UTC)

Glossary

We now have two glossaries - one on the related articles subpage and one on the glossary subpage (with an insertion made under the mistaken impression that all economics glossaries are identical). Can someone please put an end to this confusion? Nick Gardner 10:30, 29 October 2008 (UTC)

Move discussion to http://forum.citizendium.org/index.php/topic,2385.msg18122.html#msg18122

What Conservapaedia says about the same thing

I managed to track down Prof. Jensen, late of CZ, at Conservapaedia, where he is a heavy hitter, as is to be expected. Here's the opening of his Crash of 2008 -- I think it's far closer to what Larry would like to see *here* than what we have at present....

The Financial Crisis of 2008 is an ongoing worldwide financial crisis that is the worst the world has seen since 1932. It originated in the United States and Western Europe, and has impacted every country in the world. Banks and financial companies have reported losses of over one trillion dollars; investors have suffered "paper losses" of many trillions.[1] Paper losses for owners of stock in major financial institution have been over 50%, and owners of some have lost 99% as major banks closed down. The stock market has declined 30%-50% in major countries and pension funds have large paper losses. Paper losses in real estate have been in the trillions; the average price of American houses fell 20%, with 30% and higher declines in California and Florida. However, thus far ordinary depositors with cash in the bank have suffered no losses. Owners of stocks in the 5000 largest U.S. corporations have paper losses of $8.4 trillion dollars in 2008, dropping to $12 trillion in October from $20 trillion in January 2008. In late September the crisis focused on liquidity--financial companies owned hundreds of billions of dollars of "toxic" securities, mostly based on U.S. mortgages; they could not sell the toxic securities because no one knew how much they were worth, and large scale loans between major institutions stopped flowing as the system lost liquidity and froze up. A $800 billion rescue plan became law in the U.S. October 3, but its impact will not be clear for a while. Meanwhile Europe's economic crisis continues to deteriorate, as trillions of dollars in losses accumulate there and in Russia, China and India and in many smaller countries. International agencies such as the International Monetary Fund are trying to arrange emergency bailouts for medium-sized countries, like Pakistan. All around the world people are sending their money to the U.S. and Japan because the banks there are safer than their own banks. The price of oil, which reached $150 a barrel in the summer, plunged in half. That eased the gasoline crisis, helped commuters, and helped the airline industry.

Hayford Peirce 19:25, 29 October 2008 (UTC)

It's in the Jensen style, which is rather inclined to state as simple facts certain things which are rather more complex. Sometimes that is a good way for an historical overview, sometimes not. I would be disinclined to pay too much attention to recent stock markets movements as an indicator of global crisis ("paper losses" -- so what?): what is more important is the impact on the real economy, which the above doesn't even mention. Similarly, the overemphasis on housing markets is in line with journalistic accounts and not, in my view, a major issue. In fact, to my mind the overpriced housing markets across the world became a real impediment to good quality economic growth and a decline in house prices in the developed world is probably a very good thing. This is all too cataclysmic...Martin Baldwin-Edwards 20:44, 29 October 2008 (UTC)

P.S. Why are we concerned with what Larry, with no training in finance or economics, would like to see here? As I have understood CZ, it is not "owned" by Larry, although we all appreciate his hard work in pushing things forward. ...said Martin Baldwin-Edwards (talk) 15:48, 29 October 2008

I agree that it's definitely the Jensen style, heavy on so-called "facts" that may or may not be precisely that. I just stuck it in as an interesting footnote. As to Larry: Geez, Martin, are you completely oblivious to the fact that he is both the FOUNDER and the EDITOR-In-CHIEF of the project? That doesn't mean that he *owns* articles, or that we have to tug our forelocks to him (if I have the idiom correct), BUT I think we owe a certain initial deference to at least *listening* to his views without dismissing them out of hand from (perhaps) one's *own* de haut en bas viewpoint. Politeness, maybe, is another way of putting it. And, whatever his qualifications as an expert in any particular field, he *does* have a PhD in philosophy, which, to me, at least implies a possibly higher than mediocre intelligence and general knowledge of the world.Hayford Peirce 20:56, 29 October 2008 (UTC)

Shouldn't that degree, therefore, be a Ph²D? Howard C. Berkowitz 21:25, 29 October 2008 (UTC)

Hayford: when I accepted to serve on the Editorial Council it was my understanding that there are constitutional rules and procedures that have been partially developed and continue to be developed. There are also areas of expertise and we should respect those, insofar as we are able. It has nothing to do with the intelligence of anyone, let alone Larry: I always listen to views respectfully and most people listen to mine. Nick and I had substantial disagreements with both you and Larry (above) about the analysis of this article in which you were both clearly wrong. Neither of you has openly admitted this, but there is no point in continuing along those lines.Martin Baldwin-Edwards 22:03, 29 October 2008 (UTC)

Certainly, Martin, I agree with the principles of expertise and the idea of a procedural system. There is a situation with a series of articles that I'm finding appallingly bad, and I'm not sure of the next act. Mind you, in this case, I can give an expert opinion as a Military editor, but the pure writing and fact-checking would not have met the standards of my junior high school newspaper advisor.

In this case, since I seem to be one of the few people on the planet that does not pretend to have any particular expertise in economics, I am interested only in the procedure here, and the precedents it sets for CZ overall. Oh--Aleta properly called my not-quite-bluff, and, for those that question if something is rocket science, an article has been begun. Howard C. Berkowitz 22:14, 29 October 2008 (UTC)

I assume this is the same Richard Jensen who thought that a list of economists and schools of thought that was devoid of any explanation of their thinking, could serve as a CZ article on the history of economic thought. The above piece bears the same pattern of mindless cataloguing. It provides the reader with a succession of statements that sound erudite but convey no understanding of the logic of the processes that connect them. To call that sort of writing worthless is too generous: in fact it is actively damaging because many of its readers may be unaware of the barrier it creates against the real understanding of the world that it purports to explain. If I thought that the CZ community wanted to encourage that sort of writing, I should leave it and recommend all of my contacts to avoid it. Please, please assure me that it isn't so! Nick Gardner 22:31, 29 October 2008 (UTC)

Getting back to the economics... Martin, you said (above) "the overemphasis on housing markets ... not, in my view, a major issue", did you mean that the housing bubble, and the losses causes to investors therein, is not a major financial issue, one large enough to have economic implications (although I concede governments are struggling mightily to make sure that doesn't happen). If so, could you explain your reasoning a bit more? Thanks. J. Noel Chiappa 22:26, 29 October 2008 (UTC)

LOLOL, Nick:-) In reply to Noel: the collapse of the housing bubble does have short-term financial implications, and in certain cases it impacts on the "real household economies" of some people and thence on the total economy. However, taking a longer term view of it, property (especially in parts of the USA and western Europe) is heavily overpriced and damaging for economic growth proper. I am not so worried about the need to attend to short-run declining property prices, because the political pressure on governments to solve the related problems is very great and will happen. I am more worried that the emphasis on short-term solutions in the housing market will leave the major structural problems unattended. Anyway, I am not an author of this article, so I leave it to Nick to make his judgements. Martin Baldwin-Edwards 22:54, 29 October 2008 (UTC)

Ah, got it. A followup, based on something in your latest: when you say "leave major structural problems unattended", what are you referring to? Just things in the housing market, or are you referring to problems in the financial or economic spheres? If the latter, what are the problems you see there? (I got the impression that most of the structural problems uncovered by the crisis were of a financial nature - leverage, regulation, etc - not basic economic ones.) J. Noel Chiappa 23:43, 29 October 2008 (UTC)

This is going way beyond the scope of this article, but I would say that the US economy has become so dependent on debt to finance consumption, that the horrendous budget deficits and debts, trade imbalance and lack of production are structural. This had started to improve recently with a lower dollar (making some older industries competitive again) but the dollar has risen again through the interventions in the banking system. All countries of the world are going to be affected by recession, and it will require even more public spending to try to minimise that -- leading to other problems. The bail-out of the banks was just a rapid emergency measure, and it solves little despite trillions of dollars spent across the world. The policy debate has yet to begin...Martin Baldwin-Edwards 08:33, 30 October 2008 (UTC)

Got it (and perhaps my comments above indicated that I suspected that might be what you were referring to). Yes, those are definitely major problems, and you're quite right that they are not in the scope here. Thanks! J. Noel Chiappa 12:36, 30 October 2008 (UTC)

Coverage of events

I'm not going to take the bait proffered above, even though it looks very tasty. I do want to say, however, that my early objections to the "Crisis" section remain unsatisfied. The section is has added a paragraph and a very short narrative, but it does not have the details about the crash that the general educated public (our audience, remember--not economists) would expect to find in an encyclopedia article about the Crash. I should not have to go to a Timeline to get a reasonably detailed narrative of the topic of the article. The article itself should contain such a narrative. I think this is, again, not an issue about economics but about general CZ editorial policy. So, I'm going to insist on this, as Editor-in-Chief. Again, this would seem, in my completely non-expert opinion, to be the relevant place to explain how the failure and bailout of Fannie Mae and Freddie Mac figured in the U.S. side of the Crash of 2008. Indeed, putting aside all issues about "catalyst" this and "start of" that, I thought that in the U.S. at least, their failure is a significant part of the Crash of 2008--they didn't just play a role, their failure was part of the thing itself. In other words, they are two of the biggest things that crashed, that did the "crashing." So, if necessary, we ought to try to find someone with adequate familiarity with the events here who will have the temerity to add this narrative to the article. Possibly someone else who is already working on/discussing the article? This is reportage that adequately well-informed non-economists can handle; then the economists can clean it up. Dare anyone to help here? --Larry Sanger 05:18, 30 October 2008 (UTC)

No reassurance there! Nick Gardner 06:53, 30 October 2008 (UTC)

This is really very unwise of you, Larry, to persist with discussion about analysis. I perfectly accept that you are competent to advise on presentation, and I supported your request to elaborate on the explanans. The FMs are not part of the explanans any more than they were the cause of the Crash. However, I will support a footnote commenting on what uneducated popular opinion thinks the Crash is about. I find this perfectly appropriate. Your demand to include extra information in the main body is refused by Nick and myself, and I will not approve the article if it is meddled with by people who don't know what they are doing. You might also like to consider whether there will be a single active economics editor or author left on CZ if you continue with this attempted abuse of power. Martin Baldwin-Edwards 08:20, 30 October 2008 (UTC)

Martin, I will not be intimidated by you--I stand by what I said 100%. If you wish to engage me in anything resembling a meaningful, useful dialogue, please address my concerns, not my character, intelligence, or judgment. I want others reading this to understand that you and your attitude must not set the tone for CZ as a whole. Others are and will remain free to speak their mind without veiled insults, threats, and the like. They only need come to me or the Constabulary. --Larry Sanger 03:18, 31 October 2008 (UTC)

My "attitude", as you put it, is that CZ is supposed to have formal institutions and procedures and the Editor-in-Chief has no business to micromanage individual articles on which he has no expertise. In democratic societies, all are free to speak their mind and we also can ignore uninformed opinions. The situation here seems rather different, when you directly encourage people to put conflicting popular views (that apparently you subscribe to) into an aticle on a very difficult and complex subject. Martin Baldwin-Edwards 10:06, 31 October 2008 (UTC)

We've taken the more personal items to e-mail. For the rest, I should say that I completely reject the notion that it constitutes "micromanagement," or anything wrong, if the Editor-in-Chief wishes to engage in a dialogue, and interpret CZ's editorial rules as they apply to a particular article. This is, of course, entirely consistent with our democratic principles, and bald statements to the contrary do not impress me. Also, the position I am taking is not merely "popular," I thought; I thought there were experts who shared my view of the importance of Fannie and Freddie. --Larry Sanger 14:10, 31 October 2008 (UTC)

The people I write for are busy. Their time is valuable to them, and they do not want it wasted on inessentials. They want clear, concise, statements based upon authoritative sources. They do not want - and do not accept as informative - assertions that merely express the writer's opinion. Their interests are varied: some want the opportunity to follow up a particular aspect of an article in detail by a link to a related article or to a reliable reference; others would regard the spelling out of that material as an unwelcome digression. The invention of the hyperlink makes it possible to serve the needs of all of them, but to do so requires the abandonment of the academic practice of displaying the author's erudition.

My assumption has been that such people will make up the majority of CZ's readership. If you convince me that my assumption is wrong, I will accept my dismissal with good grace, and go. Nick Gardner 09:01, 30 October 2008 (UTC)

May I attempt to cast some oil on the waters here? Let me look at the current state of that section, and see if it seems to me that something could usefully be added. J. Noel Chiappa 12:36, 30 October 2008 (UTC)

Well, it's a tiny bit short, in comparison with the rest of the article, but I'm not sure that's a problem. I would expect to see a survey article on 'Crash of 2008' to cover causes and consequences, as well as the actual events, and of course one doesn't want the whole article to get too long, so I think that overall it's about right now, in terms of length and content. I did come away with a few minor suggestions for your consideration, though:

I do think there is probably a place for an 'events of the 2008 crash' article (not sure exactly what the best title would be)which could cover them in more depth, because I think more details would be of interest to some readers. (Such an article would of course be mentioned/linked at the start of the 'Events section'.)

About the only major thing I can think of which I don't see mentioned in that section is the drying up (in the US at least) of the commercial paper market (which led to the Fed announcing they would purchase short-term commercial paper too), which I do feel was pretty important (it could have had disastrous economic consequences). The article does mention bank paper, but it was all commercial paper that was affected at the height (around the time of the Paulson plan).

There might also be a use for one sentence saying something to the effect of 'The crisis accelerated with the failure of the two big home lending agencies FNMA and FHLMC', because looking at the timeline, things really did go from very bad to crazy after that - Lehman failed a week later, etc. I'll see if I can dig up a review article which states my supposition that the failure of the FM's really put the kibosh on confidence; if there is some backup for that, I do think it would make them worth a brief mention. J. Noel Chiappa 12:59, 30 October 2008 (UTC)

Well, I looked, but couldn't find any source for the concept of the FMs failure triggering a further fall in confidence - although the timing is certainly suggestive. I did find this, though:

This episode started when the Treasury nationalized Fannie Mae and Freddie Mac on September 8. .. This decision marked an acknowledgment by the government that the mortgage market and the institutions to make it operate in the U.S. are broken. [7]

which seems supportive of the notion that the crisis did accelerate to, well, crisis proportions with the FMs failure. (Although I'm somewhat dubious about the second sentence - I think it principally marked an acknowledgement that due to losses, the FMs were underwater - although of course at a higher level, it did indicate the problem they give.) J. Noel Chiappa 13:24, 30 October 2008 (UTC)

The "episode" referred to was the extraordinary period of government intervention - not the crash. Nick Gardner 15:05, 30 October 2008 (UTC)

I didn't mean to suggest, by including that quote, that the entire crisis started with the FMs bailout - rather, as I said above, it was to indicate that "the crisis did accelerate to, well, crisis proportions with the FMs failure". Their language, in calling it "the most remarkable period of government intervention into the financial system since the Great Depression", would seem to me to indicate a fairly significant, and noteworthy, stage in the overall crisis, no? J. Noel Chiappa 15:19, 30 October 2008 (UTC)

I'll have another look at the subprime article with that in mind. Nick Gardner 16:47, 30 October 2008 (UTC)

Noel, I know you might be trying to broker a peace here, which I respect and appreciate, but I can't agree in this case. A separate article about the events of the crash of 2008 would be redundant, because the crash is a complex set of events, which is precisely what that separate article, which you propose, would be about. If anything, the Crash of 2008 article should be about the events, and then, if we really need to put content of the article onto other pages, we might have articles such as Explanation of the Crash of 2008 and Response to the Crash of 2008. But the Crash of 2008 article should be about...the Crash of 2008. Is it really that outrageous to say this?

Martin and Nick, if we can mercifully turn to matters of actual substance, then please let's. The article now says that the crash "was triggered by the American subprime mortgage crisis, which infected much of the world's financial system and exposed its fragility." You say, "The FMs [Fannie Mae and Freddie Mac] are not part of the explanans [that's philosopher-talk for explanation; you mean explanandum] any more than they were the cause of the Crash." Now, Fannie Mae and Freddie Mac are mortgage lenders. Now, there is no plausible analysis of the American subprime mortgage crisis in which Fannie and Freddie do not play one important role; our own article on the subject says as much. So, let us lay out a syllogism: the crash was "triggered" by the American subprime mortgage crisis; the policies and failures of Fannie and Freddie were important parts of that crisis; hence, being important parts of the crisis, Fannie and Freddie helped to trigger the crash.

There's another very simple argument that I wish you'd address. The name "Crash of 2008" implies that something very dramatic happened in 2008, and the article also says it was a "financial crisis" that involved a "credit shortage and general loss of confidence." Well, it seems to me that by this definition the weakening and nationalization of Fannie and Freddie were important events in the Crash of 2008. Why do I say so? A Freddie Mac report from 2003 said that "Fannie Mae and Freddie Mac play a central role in the U.S. housing finance system."[8] Moreover, it is well known that Freddie and Fannie neared bankruptcy and in response were basically nationalized by the U.S. government (they had been U.S.-chartered and -regulated entities). Now, when two companies that "play a central role in the U.S. housing finance system" near bankruptcy, that and very closely related events seems to be exactly what is referred to when we speak of a "credit shortage and general loss of confidence." Fannie and Freddie, being mortgage lenders, were about to go under; their going under would itself constitute a stunning unavailability of credit, since they own or back so many loans in the U.S., and because their failure would have devastated the mortgage industry in the U.S. It also seems obvious to me (I know, I know, maybe just because I'm not an economist) that their very public weakening and nationalization contributed significantly to a general loss of confidence. Hence, just by looking at the nature of the institutions, their crashing in 2008 must be considered an important part of the Crash of 2008, as defined in this article, at least in the U.S. -- I know I must be saying things that are idiotically simple, or they seem simple to me, which is why all this puzzles me so much. I'm not trying to be tedious. I'm just stating the argument with as much clarity as I can, so you can tell me exactly where I went wrong.

Please explain, Martin or Nick, why these are bad arguments. They seem obvious to me, but I admit that I might have made some beginner mistakes that are obvious to experts such as yourselves. Please explain in at least a few substantive sentences why these are bad arguments. You write as if the matter were quite simple and my mistake is obvious. If it is, you should have no trouble explaining it! Maybe you've already explained it and I just didn't understand or wasn't paying attention. I'm very sorry if so, but again, if the errors in these arguments are so obvious and simple, it shouldn't take much time to explain again what they are.

Also, Nick, you write: "The people I write for are busy. Their time is valuable to them, and they do not want it wasted on inessentials. They want clear, concise, statements based upon authoritative sources. They do not want - and do not accept as informative - assertions that merely express the writer's opinion." I can understand that, and I believe I agree with it more or less. In what follows after that, however, you seem to assume that the specific failures of major institutions, apart from Bear Stearns and Lehman Brothers, are "inessential." This is exactly what I don't understand. When writing about a major, complex crisis, why aren't the institutions, dates, numbers, etc., essential? Please explain that, because I really don't understand. You seem to imply that reporting such facts as this would be "merely...the writer's opinion," and yet all the long theorizing about the explanation of and solutions to the crisis seems more opinion-making to me, while the facts about who failed when seems to fall more in the realm of, indeed, fact.

I'm not trying to drive either you, Nick, or Martin off the website. I am trying to understand. Also, Nick, if you don't want to craft the who, what, and when, I'm sure others would be willing to take a crack at it--at least, if you did not threaten to leave the project if they did! --Larry Sanger 03:41, 31 October 2008 (UTC)

Larry, while it's true that I have been attempting to help, my position on what the article should contain, and what could be elsewhere, really is what I think would be best - i.e. that the 'introductory' article should cover both events, causes, and effects, and that covering the events in good detail would probably make the article too long. J. Noel Chiappa 13:08, 31 October 2008 (UTC)

Before turning to matters of substance let me first make my personal position clear. I would not leave the project because another writer intervened, but I would leave the project if there were a consensus that my style of writing (which I defended as being for busy people) is not what CZ readers want - which is what I meant when I referred to as dismissal - and then only because I am too old to learn to do it differently. I would, however, leave it in protest if it adopted opinionated approaches to writing - such as the Jensen example - that mislead rather than inform the reader. Nick Gardner 07:29, 31 October 2008 (UTC)

My view of the role of Fannie Mae and Freddie Mac (FMs)in the global crash has been influenced by a number of considerations that I will deal with seperately (and in stages, so as to evade the recurring "edit conflict" irritation).

The first consideration is Charles Goodhart's belief that the crash would have happened even if there had been no subprime crisis. I found his reasoning persuasive, together with the fact that he and others had previously forecast a crash - although they were proved to have been wrong about its origins (hedge funds had been the favourite).

The second consideration is my understanding that the bursting of the US housing bubble, with its disatrous consequences for the FMs, would not have triggered the crash had it not been for the existence of the toxic subprime assets. (They are presumably not what ruined the FMs since they were not allowed to finance suprime loans).

The third point is my assumption that the weaknesses in the Bear Stearns hedge funds arising from their holdings of toxic assets, would have come to light independently of anything that happened to the FMs and even if they had never existed. It is only an assumption, but I know of no evidence to the contrary, and I shall persist in it until I do.

The fourth point is the one that I used by way of summary at an earlier stage in this debate. It is that the announcement by the French company BNP Paribas that they no longer had confidence in the subprime assets held by their hedge funds that signalled the conversion of the crisis from an American problem into a global crisis. I argued then that it seemed implausible to suppose that it had been the FMs problems that influenced that announcement since it followed immediately upon the news of Bear Stearns' losses and was made at at a time when the management of Fannie Mae were insisting that there was no problem there.

To sum up: although I consider it right to say that the collapse of Fannie Mae and Freddie Mac was - because of their domination of the US mortgage market - a very important part of the crash for America, I believe that it is wrong to say that they were its cause or catalyst, or that they were essential to it, or even that they were among its minor contributory causes. I accept that none of the above considerations is conclusive, and I am prepared to abandon any of them in face of contrary evidence. But as things stand, to believe otherwise seems to me to confuse symptoms with causes. Nick Gardner 09:17, 31 October 2008 (UTC)

A couple of points I'd like to make here:

First, when you say toxic subprime assets. (They are presumably not what ruined the FMs since they were not allowed to finance suprime loans), I think that's incorrect. Although they couldn't purchase subprime whole loans, they reportedly did purchase quite a few sub-prime bonds (see e.g. [9] and [10]). Nonetheless, my recollection is that it wasn't just the sub-prime bonds which took down FNMA/FHLMC, but a combination of that and losses in mortgages which they had bought and guaranteed (although I can't lay my hands on a source to point you at right at the moment).

Second, regarding the bursting of the US housing bubble .. would not have triggered the crash had it not been for the existence of the toxic subprime assets - my sense is that this is hard to say. As I'd mentioned before, that 2007 report on sub-primes estimated the total losses there at about $100B (as of that point in time), but the total losses from the housing bubble are likely far larger than that. It will be a while before accurate numbers are known, of course...

I'm also confused by your agreement with Charles Goodhart's belief that the crash would have happened even if there had been no subprime crisis, i.e. sub-prime problems were tangential, while at the same time you say that the bursting of the US housing bubble .. would not have triggered the crash had it not been for the existence of the toxic subprime assets, which seems to say they were necessary. Perhaps there's something I'm missing, but these seem contradictory?

For what little it's worth, my perception is in the middle - the US housing bubble crash was a major cause, and the sub-prime mess was just the leading edge of that. An un-resolved question (as far as I know) is to what degree the availability of sub-prime loans caused price ballooning across the housing market; i.e. would the broader bubble have been as bad without the existence of sub-prime loans to drive demand. J. Noel Chiappa 13:50, 31 October 2008 (UTC)

Edit conflict! Nick, what a pleasant surprise this morning to see this. I really appreciate it.

Your first point is puzzling because the article itself claims that the Crash "was triggered by the American subprime mortgage crisis." But now here you are saying that the subprime crisis was only an overdetermining factor, not an essential or main trigger. On your view, should the statement in the article be revised? Or are they somehow not contrary statements? Maybe I'm confused. As to the second point, Fannie Mae did back subprime loans; see [11] for example. This is a crucial point; their support of "bad credit" has been pointed to as one cause of the housing bubble. So, third, if Bear Stearns' failure helped cause the crash because of its holding of bad loans, exactly the same thing can be said of the FMs, no? Passing along to your summing-up, thanks for acknowledging that the FMs collapsing was an important part of the crash for America. I would take that as meaning that their role in the crash in the U.S. should be accounted for in any more detailed account of the events of the crash. It is a separate issue whether we need have more detail in "Crash of 2008." If you are adamant in leaving the details out, I am willing to back down on that specific point, as long as we can put them in in another article as Noel suggests. --Larry Sanger 14:10, 31 October 2008 (UTC)

Credit-rating agencies

As promised, here's some research about things being said about the role of the credit-rating agencies.

The most 'authoritative' stuff is probably from the U.S. House Committee on Oversight and Government Reform, which held a Hearing on the Credit Rating Agencies and the Financial Crisis. (My only concern about that is that since it's politicians, they have incentives to spin things.) The hearing outcome is summarized in this news item, which is somewhat excited, but saves plowing through the actual hearing. The hearings were covered in a more normal tone by the NYT here and here.

Here is information on a hearing in the US House last year on the CRA's.

This article, from a German banker, offers this criticism of the CRA's:

Even if the need for corrective action in the CRA sector is obvious, it would not be fair to put the blame for the financial market turmoil solely or mainly on this ... Yet .. CRAs' prominent position in the structured finance products market imposes on them an obligation ... This involves a kind of "early warning" function - a function that CRAs have failed to perform properly to date.

It's also interesting because it gives a European perspective, and indicates the same problems exist there too. This article from earlier in the year, although a bit excited in tone, shows concern in Europe as the crisis was gathering momementum.

This article from 'Mortgage Banking' calmly discusses the problems with credit-rating agencies. This column is mostly an amusing, fun read.

Finally, this interesting article touches on the CRA's in passing, but it mostly (and interestingly) chronicles the growth of derivatives, and in particular their use in (notionally) offloading risk from banks into off-balance-sheet entities.

Anyway, maybe some of this will be useful. J. Noel Chiappa 15:01, 30 October 2008 (UTC)

Many thanks, Noel. I will certainly make use of this and do some new drafting. Nick Gardner 15:07, 30 October 2008 (UTC)

Glad to help. Now, let me see what's next on my 'to-do' list (above).. :-) J. Noel Chiappa 15:21, 30 October 2008 (UTC)

Now that I have scanned through the material, I feel inclined to wait for a more balanced assessment to emerge - perhaps from the report of one of the committees of enquiry. We won't have to wait for long, and it could probably be included in an early update. But your cuttings did afford the sort of schadenfreude and amusement that is traditionally experienced when watching a pompous politician slip on a banana skin. Nick Gardner 21:40, 30 October 2008 (UTC)

Well, it's certainly true (as one witness in the House hearings put it) that the bond buyers were unwise to rely on the CRA's when they knew that the bond creators were paying the CRA's. However, I feel that some of this is 20/20 hindsight - yeah, nobody trusts the CRA's now, but back when... Yes, a hypothetical rational player should have realized this back when, but the same HRP should have realized that house prices were silly, or that tech stocks had been way overvalued, or that ... tulip bulbs couldn't possible be worth that much - and yet somehow, over and over again, whole masses of people seem not to get it except in hindsight.

In fact, I may be being a bit unfair on investors - when something labelled a CRA, whose ratings have been relied on (usually sucessfully) for generations, says something is OK, it's not too surprising that people think 'well then, it's OK'.

Also, as some of the sources make clear, the CRA's did have a semi-statutory role (which I don't have time to research), in that their imprimatur was required for some buyers.

So while the extent of the failures of the CRA's being a causative factor may still be unclear, that they were a factor seems fairly reasonable. J. Noel Chiappa 13:01, 31 October 2008 (UTC)

Unreliable securities

I had suggested that rather tham say mortgage-backed securities were "unreliable", it would be better to say something like 'became impossible to put an accurate and dependable value on these securities'. In response, there was a call for a better statement of the US government's position on the matter. I've been looking for something, and the best I can find is this:

"home loans are often packaged together and converted into financial products called mortgage-backed securities. ... Before long, these securities became so unreliable that they were not being bought or sold ... as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply, yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages."

from Bush's TV address (which uses, ironically, "unreliable" - interestingly, he doesn't actually use the term 'toxic', not sure where that came from). It's not perfect, because it doesn't capture one of the main problems with these securities, i.e. it's hard to be sure what these things are actually worth, a point well captured in e.g. this story.

Still, it's the best I've found - it does point out that they are now illiquid (although we shouldn't use that term unless we explain it), and likely highly undervalued by what little market there is. I suppose "unreliable" is in some sense accurate, but I think we should be giving a little more depth, i.e. why they are unreliable. J. Noel Chiappa 14:46, 31 October 2008 (UTC)

Attitudes to risk

I had commented that the latter part of this sub-section was a bit jargon-heavy, and in further reponse had promised to try and suggest some alternative wording that might make the points a bit more accessible. This is my attempt at so doing:

That had been due partly to the use of risk-management procedures that were unsuitable for the predicting the value and risk of securitised products in times of significant economic difficulties, partly to a lack of access to the detailed information needed to indepently value these in an accurate way, and partly to an incentive structure for fund managers which in effect rewarded them for taking risks.

I hope this accurately captures what you were trying to convey, and I think it does so in a way that's more accessible to the average reader - can others please confirm my latter impression? Thanks.

Anyway, I think that's the end of the list of things I had said I'd do, except for the copyediting of the 'Causal Factors' section, which I'm going to put off until a bit later - getting a bit tired of this topic, need a break! :-) J. Noel Chiappa 15:02, 31 October 2008 (UTC)