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Will Goldman Sachs and the other big banks allow us to move beyond the bubble economy, which they are using to unfairly (and quite probably illegally) extract hundreds of billions of dollars from us every year?
Economics professor Nouriel Roubini points out that for the last 30 years the US has been growing fast only during periods of asset bubbles that eventually burst with significant economic and financial costs. The 1980s real estate bubble went bust in the late part of that decade, leading to a severe banking crisis for the Savings and Loan banks, a credit crunch, and a severe recession in 1990-91. Next, the 1990s tech/internet bubble went bust in 2000 leading to the 2001 recession. More recently, a massive monetary and credit easing as well as lax supervision/regulation of mortgages and credit led to yet another housing and credit bubble, which has now gone bust, creating an even more severe financial crisis and recession.
The current monetary easing may lead to still another bubble, but perhaps with worse consequences than ever before. Obviously we need to create an economic system that is less prone to bubbles and more likely to lead to sustainable stable growth.
For the last few years the US has overinvested in the most unproductive form of capital residential housing stock that increases utility but not labor productivity and is not invested enough into physical capital that increases the productivity of labor.
Also we overinvested in the financial sector, helping to create the housing boom and bubble. And having a country where there are more financial engineers than computer engineers or mechanical engineers represents still another misallocation of human capital.
So we need to create a growth model relying less on housing/real estate, less on finance, and less on having the brightest minds of the country going into financial services rather than into the production and innovation of new and improved machines, goods and services.
http://www.creativeclass.com/creative_class/tag/case-schiller-index/
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Although it was not widely known, Goldman Sachs, a Wall Street stalwart that had seemed immune to its rivals' woes, was AIG's largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. And so it was that the imminent collapse of this insurer (AIG) threatened to leave a $20 billion hole in Goldman's side, several of these people said.
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