I believe the real problem, using this allegory, is the Obama administration is just standing back watching the fire and thinking about calling the fire department, but nobody seems to have the number. In the interim, the fire has blown through the all the barriers and breaks and is now threatening the country. We won't need national health care if the patient dies in this fire...

Didn't somebody's cow burn down Chicago?

There are no fire breaks in this system, but there is also no fire. This stuff is all imaginary.

A fireman could step in and stop the madness, but firemen are hard to come by.

This is the stupidest economic crisis in history. We are in extreme overreaction, and boy howdy do I mean extreme.

Sheldon,

We certainly see the disparity of opinion on the subject in the first two responses. The first says there is no fire, the second says there is a fire but the Obama Administration is ignoring it. That's right, ignoring it.

By the way there is an article in today's Washington Post by John Boehner saying, We are not the "Party of No"

Okay now, how do we build adequate financial fire breaks? Adequate savings, though what is adequate? Defensive stocks? My defensive stocks have proved that defense is what keeps de cows in de field.

And perhaps more importantly, where do we go from here?

What if balanced budgets were the firewall and regulation and less leverage were the firemen, does that mean we already burned our bridges?

When it is all rubble, the only way it will become "unrubble" is to extend credit.

That is how Bank of America got started. In the rubble of the San Francisco earthquake and subsequent fire, he grabbed some rubble and fashioned a crude desk out in the street, and started, on a handshake, lending people cash out of his pocket.

The only difference here, touch the surfaces, there is no heat. The ground never quaked. The buildings and houses are standing picture perfect. This crisis is imaginary.

We have an accounting rule that forces people to write off huge loss provisions against the interest income the written-down asset is still producing. Okay. Try to grasp this. That is pointblank stupid. Why are we doing this? Because people are as frightened as the people who lived through the San Francisco earthquake and fire.

And I'm certain those people who survived that disaster would look at us now and ask, "What the hell is the matter with you idiots. There is no quake; there is no fire. Calm the F down."

The problem is real estate foreclosures. Normally the system can deal with them without even a hiccup. This foreclosure event is too big for that system, so there has to be a massive Federal intervention. That is the equivalent of the guy making handshakes in the ruins of San Francisco. It may be sour tasting, but we have to keep people who have jobs in their homes. It's the only way through this.

So contrary to the above, Obama has called the firemen. The only real problem, the idiots on Wall Street hate Obama so much they are perfectly capable of imaging the firemen are not there.

It's really more than a foreclosure problem. What caused the problem was a realestate bubble that burst which lead to a foreclosure crisis which has not yet peaked. It's a vicious cycle as more people become underwater on their mortgages, there will be more foreclosures which put downward pressure on housing prices which leads to more foreclosures. People lost home equity and stock equity and so no longer want to or can't spend or borrow which leads to lay offs which leads to more foreclosures and less spending. We're in a downward spiral of deflation and deficit spending is rising. So this is quite a firestorm.

Oh and I forgot to mention CDS's and CDO's as well as commercial realestate and credit cards are having increasing problems. Mark to market accounting is the truest accounting measure. We just don't like what it's telling us. Could you imagine a person trying to sell their house for future maturity value vs. mark to market value? Mark to market is reality, and just stinks now cause the real estate bubble burst and it's hurting everybody. Let's not even get into national deficit and budget deficits and banks afraid to lend to people who no longer can borrow. It gets depressing.

The real estate bubble was largely inflated by millions of credit unworthy buyers who suddenly had access to seemingly limitless funds.

Mark to market can only work when there is a operational market. That is the pulse it is taking.

It is insane to use mark to market when the market frozen in panic. That sort of market is irrational and incapable of even beginning to make an accurate valuation. It would be like letting a drunk surgeon do your surgery. wouldn't it be a little smarter to wait until the surgeon has sobered up?

The value of an asset that is earning copious amounts of interest income is not near zero just because there is not a buyer for it in the marketplace.

That is insane. It's irrational. Look around. Does the economic landscape look rational to you? Because of some weird allegiance to an accounting rule, we are supposed to just let the nation collapse into deflationary oblivion?

Seriously? We fight inflation, but not deflation? Why?

Sheldon the Firestorm analogy is so accurate – but only if you have any idea of how fire storms happen. Having lived outside So. Cal I know that most of the country “doesn’t get it.”

People who can’t see the smoke / flames think it does not exist, can’t be that bad or that the victims deserve it.

The psychology is the same.

But the difference is that Dubya thought “Cal Fire” was “Big Government” and dismantled it. Now Obama has no “unified command” to call and needs to re-build the service while trying to fight the fire.

Both these views exist in a fire storm. And the news coverage has a similar quality as well.

Meanwhile the fire is “spotting out” throughout the world economy.

I have been using this analogy with my own family in our plans to try to stay safe, but if you don’t understand enough about the economy or enough about fire behavior, it can be too much of a stretch.

An individual in a fire's first action is to assess if their property is on fire, if it is get to safety! In this case make sure you have the cash to survive, cut your losses (al la Cramer’s “if you will need it in the next five years call”.) if you are not “on fire” set up personal firebreaks (Emergency funds) you may not need to sell to do this. Fire science shows that even if you protect your house and do everything right, it may still burn to the ground and the poorly protected house down the street may be fine.

If you are not a part of this world economy you may have no reason to do anything.

Also fires draw out arson, like folks walking away from their house just because they owe more than it is worth even though they can make the payment, just because there is no fire near you now does not mean someone else won’t want to start it.

Cheers!

The real estate bubble was inflated by house flippers and speculators (investors). As prices soared so did property taxes and insurance the investors started to get out this caused bubble deflation which led to underwater mortgages. Subpriime A.R.M. borrowers were the first to fall from the deflation but shortly after Alt A and jumbos joined, followed by prime fixed rate borrowers. The first trigger was the bubble burst. However, long before that it was outsourcing and budget deficit spending mixed with trade deficits.