Professor Livingston argues that if business squeezes too much money out of labor, then, demand drops and business has no healthy place to invest its excess profits (plant and equipment) and heads out in search speculative paper which the only alternative (dot.com start ups with no realistic business model, risky real estate): leading us from bubble to bubble.

Ditto for Bush's tax breaks for the already too rich being invested in, guess what, real estate paper.

See Livingston at:
http://hnn.us/articles/55614.html

On setting the stage: you might look at historical returns or correlations of returns by asset class and how this has changed (if at all) during current situation. Some "conservative" or "risk-averse" (low volatility) stuff may be hurting more than what some would have predicted based on history. Didn't Keynes say something like markets can stay irrational longer than you can stay solvent?

Also, on macro real estate discussion, it may be interesting to look at things in real as well as nominal terms (% decline in real and nominal terms - how is real determined), as well as by region of country.

As for timeline: from ~ 1966-1982 the dow zig zagged and went no where. So, it could be 8 more years until we permanently break through to higher ground (using DJIA as a proxy, which is very imperfect). It may happen sooner than 8 years due to technology and things moving faster. It could happen slower. The nasdaq continues to be significantly underwater since the year 2000, which means transactions from 2000 are still feeeling some economic pain.

http://en.wikipedia.org/wiki/Closing_milestones_of_the_Dow_Jones_Industr...

And as for potential severity of the crisis, the comparisons to GDP were very interesting and show how deep the recession could be. I do not think that 1%+ declines in GDP have registered wtih many, as well as pain for 4 quarters or more. However, I am not sure whether it is okay to compare the U.S. to some of the countries in the study without at least explaining why the U.S. would be similar in a downturn to a country such as Mexico or Turkey. The U.S. is different.

http://www.reuters.com/article/bondsNews/idUSN0741936720080208

Fed's Yellen sees weak growth, but no recession
Fri Feb 8, 2008 12:25am EST

As for solvency, it seems like this is hard to know. Any bank could have a problem if people get nervous and pull deposits in mass.

The only one to mention the credit default swap liability was the fellow on the far left at the table. Lack of transparency is a huge issue, but we should get a clue about the severity of this issue on Tuesday (when Lehman CDS are settled)

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/321164...

Here's my take on the question. Factory automation and outsourcing, by reducing the wage share in overall income, seriously compromised consumption expenditure in the 1980's. Ronald Reagan responded by outsourcing traditional fiscal policy to the banking sector, specifically with the passage of the Secondary Mortgage Market Enhancement Act in 1984, making securitization possible. The banking sector took the bait and multiplied questionable sub-prime loans. All in all, the policy was more successful than Reagan could have ever imagined as it touched off a housing bubble that further increased indebtedness as home equity balloned. Everything was honky-dory until the housing bubble burst, which is why the banking sector is now stuck with $7 Trillion of bad debt.
The true culprit was factory automation and outsourcing. Reagan's outsourcing of fiscal policy and the fallout were but consequences. The banking sector is not to blame, nor is Reagan, although traditional fiscal policy would have been, in my view, a better choice. As it turns out, the current bailout of the banking sector can be seen as a form of delayed fiscal policy, the only problem being that it fails to address the current problem!

The financial meltdown is the primary reason why many people are struggling. And it seems that American industry is also feeling the effects of this. Government leaders should take a closer look to the causes of this financial meltdown and discuss it to be able to address the growing problem. A large conglomerate corporation focused largely on the aircraft industry which is the United Technologies has been hurt by the global recession as well. They have also announced a round of job cuts, a paltry number of only 11,600 jobs- which is hardly shocking at this point. The forecast from United Technologies is that they do not see a second half of the year recovery as possible, and are in need of a tune up.

Absolutely right on! This country has perpetuated and encouraged the glut of the executive class for far too long. Even though the entrepreneurial spirit is what makes up the backbone of the American economy, that does not mean that the executives of any corporation can forget the two groups of people that are the sole authors of their opulence and success, and those are their customers and their employees. Think of Henry Ford: He paid his employees several times above the minimum wage and made his product affordable to many people, in essence putting his products and services in the price range of the customers, and also providing the men who worked for him with a means to a middle class life, one that was certainly more rewarding than toiling away in an office for decades for not a whole lot whilst those hwo ensconce themselves at the top of the pyramid begrudgingly give what little they pay to the very people who provide them with their success. The reason why these companies were so heavily invested and then crashed is because they thought they didn't have to concentrate on retaining customers, and didn't care if employees were laid off - and those people, customers and workers, are what made B of A, AIG, and Citigroup what they are today, and then, the very people they have abused, are the same ones who are having to foot the bill for their arrogance and incompetence.