I've been reading the book Crisis Economics by Nouriel Roubini and Stephen Mihm, and it has been an interesting, modern history lesson on the financial system and government intervention and its work to ease the blow of financial destruction for which the US and the world economy was on the brink. If you've heard the term credit default swaps, mortgage backed securities, collateralized debt obligations, or the alphabet soup of these terms -- cds, cdo, cdo squared, cdo cubed, mbs, abs, and the numerous others, but never understood what they were, check out this book.
It's quite possible that we'd be in a world wide depression if some sort of intervention wasn't put forth, but seeing to what extent well known monetary and fiscal tools have been put into place, in addition to the numerous experimental tactics. But, you'd need this kind of intervention when the financial community was putting together magic bonds made up of risky subprime mortgages and other products such as student loans, airplane leases, and car loans to name a few. One such tactic is quantitative easing, which we are into a second phase of, affectionately dubbed QE2.
Take a look at a chart of the S&P 500 from March 2009 to the present (linked below). Something took place at that time, which corrected the market and it started in a completely different path. From my understanding the initial stab at quantitative easing took place at that time. It had a very significant impact on the market. $1.2 trillion dollars would likely make a splash like that! But, that is one of my concerns, how can someone make a decision on the market, when it can be manipulated in this regard? Clearly, the market was in a free fall, and it may have been an investor's outlook that the market will continue in a downward spiral. Intervention, would cause a person shorting the market to lose money on their trade, because of some unnatural market force.
This is just one of the many policies and economic reforms described in Crisis Economics, considering how much backstopping that has taken place, you'd have to think that the government intervention must unwind at some point in time, only delaying the inevitable, even though it eased the blow of what was occurring in early 2009. Before I forget, one of the key points I've pulled out of this writing, so far, is that there is nothing new under the sun; crisis economics has been around for a long time, and there's a lot to be learned about the history of the latest edition of crisis, because there is bound to be another in the future.
Chart for the S&P 500 (2009-2010)
Dig a little deeper - Crisis Economics at Amazon:
