The tightness of credit is cyclical.

[Eric J in MN]

During recessions, credit is tight. In good times, credit is looser.

If we now treat tight-credit as a crisis caused by bad invesments and have the government buy bad investments,
then what about the next time credit is tight?

Are we going to have the government buy bad investments every 10 years?

[JFN1]

1. The problem here

seems to have been brought about by loose credit during a recession.

[jpgray]

2. Would you point to a similar crisis, with similar massive bank failures, from the last ten years?

Ever wonder why your collection of pleasing truisms has very little of worth to say about what is actually happening?

[kikiek]

4. Exactly. And personally I don't recall worrying about bouncing paychecks before.

[Eric J in MN]

5. Those failures aren't because credit is tight across the board.

It's largely because in 2004, they were given permission to take excessive risk:

========================================
http://www.boingboing.net/2008/09/18/how-sec-ruleexemptio.html

The events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption -- given only to 5 firms -- allowed them to leverage up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.
========================================

[WorseBeforeBetter]

3. You know, that's a good point.

Many Americans (living like hogs at the feeding trough) are so accustomed to loose credit and artificially low interest rates that the thought of 10% brings on apoplexy. My first car loan was 13% and my first home loan was 8%, and I survived.

When did things start getting nutty... 1995? 1998? De-regulation aside, that is.

I do believe we have a huge problem that needs to be 'fixed', but we're going about it the wrong way.

[JuniperLea]

6. Easing credit is what caused the problems...

People were able to get mortgages by "stated income"... you could basically say you made $150k when you really only made $50k.

Easing of credit caused the problem. It's only logical that there would be a tightening all over as a result. And I don't think any bailout of any size would change that, nor should it really!

Everyone needs to learn to live within their means again. That's what the great depression taught us. Too bad we have to re-learn.

[johnaries]

7. What has happened has NEVER happened before in history.

For the first time ever, the money markets "broke the buck". Credit didn't just get tight, for a while it froze completely.
http://www.npr.org/templates/story/story.php?storyId=95099470