Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.

The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.

Scapegoat-of-the-moment

The ever-incisive FT columnist Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.

Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut, Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.

Financial eras, like social periods, are often defined by moments or epiphanies when decision makers and/or citizens realized that a serious flaw/mistake/problem was occurring through time, and across space, and needed to be corrected.

The ever-incisive FT columnist and economist Martin Wolf describes one contemporary concern that's likely to be addressed: the failure to align the interests of managers with those of investors.

My BloggingStocks colleagues Peter Cohan and Zac Bissonnette have also written on the subject on several occasions in this space, and now the FT's Wolf has assembled additional data that may very well lead to public policy changes, both in Wolf's United Kingdom and in the United States.

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

The ever-incisive FT columnist and economist Martin Wolf has some good news for investors, who are no doubt weighed down by the cacophony of pessimism permeating the U.S. stock and bond markets these days.

Wolf argues that the U.S. housing recession and accompanying credit market concerns are huge dangers, for the U.S. and for the rest of the world, and a bumpy road is ahead, but the public sector, led by the U.S. Federal Reserve, is now coming to the rescue.

Before offering his likely scenario for a return to economic health, Wolf summarizes a worst-case-scenario from Nouriel Roubini, economics professor at New York University and founder of RGE Monitor. (Fair warning: Roubini's scenario represents the bleakest of the bear views, hence it's best not to read it on a day when the Dow is down 300 points, etc.)

While recognizing that Roubini's scenario is plausible, Wolf argues that it's not likely to occur, at least not to the degree Roubini suggests.

The ever-incisive FT columnist and economist Martin Wolf offers fairly harsh advice for those in the United Kingdom (and the United States) considering a house purchase, on the belief that home prices have bottomed and will recover soon: that recovery is not happening any time soon. Nor should it, he argues.

The U.K. Government, Wolf said, should not try to protect banks to save the housing market. To do this would encourage innocent prospective buyers (new borrowers) to buy at what is probably the top of "a hugely stretched market."

And the characteristics of the U.K.'s housing bubble versus the United States' deflating housing balloon/bursting bubble? Tax laws differ by nation, of course, but there are strong indications the U.K.'s bubble may at least be equal to the U.S.'s: U.K. home prices have increased 150%, in real terms, since 1996. At the same time, the ratio of U.K. household liabilities to disposable income is 175% in 2008, compared to slightly more than 100% in the mid-1990s. Wolf's conclusion: that's an unsustainable growth in debt that is coming to an end.

In an essay/column in this week's issue of The New Yorker magazine ("Paulson's Plan," December 17, 2007) writer James Surowiecki offers a more-somber analysis of the subprime mortgage default issue than, say, Financial Times' columnist Martin Wolf.

In Surowiecki's analysis, (which, readers should note, was researched and published before the European Central Banks' infusion of $500 billion Tuesday to ensure year-end liquidity for banks), the current problem is one unlike any other that Wall Street has faced. The problem is not liquidity, as Martin Wolf argued, but 1) high-risk home owners who spent way too much n overpriced houses, and 2) a deep mistrust of the financial system because of the way the system rates and values assets like mortgages.

At issue: Wall Street?

Hence, the Bush Administrations' proposed assistance plan to the mortgage sector and some homeowners, even if it becomes more-encompassing, would not solve the problem: the financial system - - and presumably Wall Street - - simply does not rate and value assets correctly, and the government package doesn't speak to that dimension.

Once again, the ever-incisive Financial Times columnist Martin Wolf, an economist, identifies with laser-accuracy what ills the current market. The problem, Wolf argues, is not a lack of solvency but a lack of liquidity (i.e. 'panic').

Wolf does not deny that there have been bad loans (there have been) or that no companies will go out of business (some will). But the circumstance that froze credit markets, that caused quality corporate bonds to fail to price, and that leads to 100-point spreads between the LIBOR rate (what banks charge each other) and the ECB's benchmark interest rate, is rooted more in a lack of confidence, than a lack of sound economic fundamentals or a lack of resources.

A lack of liquidity

And a lack of liquidity or 'panic' is something that central bankers can address. With the above in mind, the U.S. Federal Reserve's plan, in consultation with the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Canada, to inject $40 billion via auctions into the financial system is appropriate and prudent. (Further, in addition to reciprocal currency arrangements, the companion central banks will take related actions, including the Bank of England's decision to accept a wider range of collateral on 3-month loans).

The ever-prescient Financial Times columnist Martin Wolf, an economist, raises, and to some degree answers, a question that no-doubt has been on the minds of U.S. investors, readers, as well as Europeans: Why does banking generate such turmoil?

Or, as Wolf put it another way: why is banking an accident waiting to happen, with the crisis in securitized lending the latest example?

The answer - - or fault, to paraphrase Shakespeare - - lies within ourselves, Wolf argues, due to the very things nations have established to protect depositors - - namely, depositors' insurance and government guarantees, which prompts banks to take high risks.

There's an old Wall Street adage that goes, "Sometimes the Street's chorus is a chorus of two."

And there's perhaps no better example of that than the current debate over the strength of the U.S. economy. Professionals in the Concrete Canyon have been amassing on either side of two camps for months: "The U.S. economy is headed toward recession" or "The U.S. economy will continue to grow."

Still, as history demonstrates, and contrary to the current 'chorus' on Wall Street, sometimes there are more than two options. For example, what if the U.S. economy is headed toward a growth recession? I.E. a protracted period of sub-trend GDP growth.