Understanding today's economy

For one view of what happened to the US economy, why it happened, and what it means for ordinary Americans, read this posting in the NY Times:

Diamond and Kashyap on the Recent Financial Upheavals, By Steven D. Levitt

One of their conclusions: The concern for the man on Main Street is not the bankruptcy of Lehman, per se. Rather, it is the collective inability of major financial institutions to find funding, which will slow growth.

Some of the comments I liked best:

"AIG: private profits, socialized losses." Posted by esmiles

"When the stock manipulation only affected the average guy i.e. to shoot the price of oil and gasoline through the roof or to lose one's house due to interest manipulation, this administration's answer was to let the market run its course. No need for the government to get involved. Now, when the big boys begin to get hurt, the government needs to do everything possible to stem the losses. The person who has lost his house, his job and sees his family hungry,does not see how saving these companies can now make a difference to him. These free market people sure move fast when their money and their friends money is on the line. No amount is to much for the people to spend. I guess the plan is right on track. " — Posted by jim

From Realty Check with Diana Olick on 1/25/08, re: FNMA’s mission statement:

The focus has clearly shifted from families:
In 2005: “Our public mission, and our defining goal, is to help more families achieve the American Dream of homeownership. We do that by providing financial products and services that make it possible for low-, moderate-, and middle-income families to buy homes of their own.”

to lenders:
In 2008: “We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America.”

My questions are as follows:
1. Who authorized the change in FNMA’s mission statement.
2. What effect, if any, did this have in bringing down FNMA. — Posted by Annole


Another interesting article with a contrasting opinion: http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf