Brady, good links. Let me add some comments from three good economists on what needs to be done now. What follows is from a statement by Dean Baker and Mark Weisbrot on what needs to be done.

The current economic crisis is the result of an extraordinary period of extreme economic mismanagement. The world's central banks, most importantly the Federal Reserve Board in the United States, made the decision to ignore, if not actively cultivate, the growth of asset bubbles. This was the case with stock market bubbles in the 90s and housing bubbles in the current decade.

They compounded this mistake by ignoring the explosive growth of credit and new complex derivative instruments. They allowed financial institutions to become hugely over-leveraged, ensuring that the collapse of the bubble would lead to major financial disruptions.

Finally, they failed to recognize the seriousness of the problem, understating the size of the problem at every step. This has slowed efforts to muster an adequate response to the situation. President Bush and other political leaders markedly worsened the situation when they raised the specter of the Great Depression and otherwise sought to raise fears in order to gain public support for the bank bailout package.

The meeting this weekend of the G-7 provides an extraordinary opportunity to begin the reversal of this dismal record. First, it is necessary to have a coordinated financial and monetary policy to stem the immediate financial crisis. This will require bank bailouts that focus on the direct injection of capital into the banking system, following the example of the United Kingdom earlier this week.

The financial system will also benefit from further cuts in overnight lending rates, especially by the European Central Bank (ECB). The ECB's focus on concerns over inflation at this economic junction is almost as foolish and potentially more harmful than the decision to ignore the growth of the housing bubble.

The other key component of an economic recovery package should be a coordinated fiscal stimulus. In the United States, this stimulus should be on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP). This stimulus is essential for counteracting the sharp falloff in consumption that is following the loss of $5 trillion in housing wealth and President Bush's scare tactics for promoting his bank bailout.

The stimulus should be designed to quickly boost demand. In the United States, this can best be done by aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses. It is also essential that the dollar fall against other major currencies in order to bring the trade deficit back to a manageable level.

It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80 years later.

And here is Brad Delong on what needs to be done:

What we need right now are:

* Coordinated fiscal expansions across the globe.
* Coordinated monetary expansions across the globe.
* Coordinated banking sector recapitalisations across the globe.

What we need in the longer term are:

* Global rules to make outsized compensation incentive-compatible.
* More progressive global tax systems.

--Mark Price

It seems obvious that one of the reasons that the housing market collapsed is that wages are stagnant and working families could not afford to buy a house. The gap between what people made and what houses cost caused people to buy houses with these goofy financing schemes. When the big payments became due the depressed wages could not pay the bills. Add that since wages were depressed people bought on credit and you have the present financial mess.

When Alan Greenspan feared that wages would rise and cause inflation, as if rising wages were a bad thing. Rising wages are good for one group of people-those that work for wages.

What is interesting is that no one seems to have brought this up, politicians or economists, what seems obvious.

b/t/w what will happen in Philadelphia when the tax abatements start to end. It seems that housing prices will drop more.