[stephenjudkins]

I'm hesitant to wade into this debate, but this is a pretty sophistic argument, for a few reasons:

* He largely ignores the potential for a catastrophic financial collapse in 2008-2009. At the time, pretty much everyone agreed that stopping the bleeding was a good idea. Among economists, that some sort of vigorous action was necessary is close to a consensus view. To completely dismiss this is ridiculous. Further, he doesn't address how expensive TARP actually ended up being, or that the majority of the money has been paid back.

* The funds weren't obtained from "new taxes levied on employed, middle class, non-drinkers who have never set foot in Heidi’s bar." There has been no increase in federal income taxes since Obama took office. The only meaningful tax increases that I can recall come as part of the Affordable Care Act.

* The author makes no concrete arguments for why no changes to financial regulations are unnecessary. Instead, there's a glib aside that the 'government also announces a series of regulations to “fix” the problem'. Really? This is important. Tell us why. If the government had stopped banks from selling Heidi's bonds as AAA-rated securities, wouldn't this crisis have not happened?

Overall, this is a simple, facile metaphor with many implicit assumptions, designed to bolster the author's libertarian worldview. To the author's credit, he does a good job explaining the fundamentals of the housing crisis.

[yummyfajitas]

Tarp money was mostly paid back. The Fannie/Freddie bailout was not and is unlikely ever to be.

The funds weren't obtained from "new taxes levied on employed, middle class, non-drinkers who have never set foot in Heidi’s bar." There has been no increase in federal income taxes since Obama took office.

The funds were obtained on credit. Most people believe the only way the US can pay down this debt is to raise taxes.

(I disagree, spending can also be cut. But neither major party is unwilling to cut spending - look what happened the last time they claimed they would cut spending: http://www.economist.com/blogs/democracyinamerica/2011/08/de... )

[stephenjudkins]

I mostly agree with you.

The likely situation is that the US will pay down its debt through a combination of spending cuts and tax hikes. But there is no doubt that the tax hikes will be substantial.

I believe we're in a pretty poisonous political environment, where the dominant strategy for a politician seems to be to convince your constituents that they're being taken advantage of. Most people who benefit from government programs don't realize it (see http://economix.blogs.nytimes.com/2011/02/11/keep-your-gover...), and most voters have an incredibly skewed view of what, exactly, the government spends money on. When polled, voters oppose cuts to almost every major program.

That the median voter has largely incoherent views on the budget, but is very angry about it, leads us right into our current mess.

To my original point: OP's argument is big on righteous indignation, along with a narrative that allows him to cast himself as a "good guy" and short on actual facts to how to dig our way out of this mess.

[Codayus]

Uh... Current deficits are future taxes.

This is a bit like going out to lunch with some friends, agreeing to split the check evenly, having one of them start ordering incredibly expensive bottles of champagne, protesting, and being told "don't worry, nobodies had to pay for their share of Bob's drinking". Sure, not yet. But the bill hasn't been presented yet...

Also, sure, stopping banks from selling risky bonds as AAA-rated securities would have helped. But no regulation announced to date in the US has stopped or will stop credit rating agencies from calling a risky MBS AAA-rated, or banks from selling a risky but AAA-rated MBS to a willing buyer. Indeed, no such regulation is even possible; it would fall afoul of the US constitution.

The author's glib dig about regulations that "fix" the problem is arguably the best bit in the article. Can you name any regulation promulgated since the crisis that might, even in theory, help? The biggest one so far has been Dodd-Frank, and it's a joke; many analysts think it made the problem worse.