Reply #7: But there were other factors underlying all that

[nichomachus]

All of these phony securities wouldn't have been sold had there not been money in search of investment.

When productivity became detached from workers' wages back in the '70s, the trouble began. It used to be that higher productivity meant higher wages. This is what created the middle class. Workers would produce more and get more money. The workers would spend and that would pump the economy by creating demand for new goods. But that ended. Since the '70s, productivity has increased and workers' wages have stayed flat -- or declined.

This meant that the extra money was floating to the top. Money is always in search of investments. At the same time, the country began its love affair with eliminating taxes on the rich. That meant even more money floated to the top, also in search of investments. But, there are only so many solid investments available.

This accounts for a lot of real estate froth -- and the Internet bubble, when people were investing millions of dollars in crap. That ended.

The banks weren't stupid. They saw that there was all this money looking for somewhere to go. So, they started creating these phony "securities." They couldn't afford to have any regulation because if anyone with more than a sixth grade education really figured out what they were doing, they would have stopped them.

Trickle-down economics is right -- in theory. It doesn't work so well in practice. Theoretically, people at the top who get more money will invest it, but they won't necessarily put it back into the business or start a new business. They will chase the best return. And the best returns were coming from these phony "securities." So, that's where all the money went -- and this is why the manufacturing sector, along with everything else started to go to hell. Who is going to put their money into a machine tool plant and take a chance of getting 4 percent, when they can go into derivatives and get 10, 15, or 20 percent?

So, it was the labor policies that began in the '70s, along with the no-tax crowd that really set the stage for the current problem.

At the same time, we saw the WalMartization of America, where WalMart offered cheap goods to people whose incomes weren't keeping up with productivity. Of course, WalMart kept its prices low by demanding its suppliers produce more and pay workers less -- and eventually putting most of its American suppliers out of business.

Then, in order to keep consumption high, we hooked consumers on debt -- something that really didn't exist in the late 1960s or early '70s.

There is no single cause of the current mess.