THE ROOTCAUSE OF THE FINANCIAL TURMOIL ?

More practically, he writes that some of the biggest changes to CPI calculation happened between 1997 and 1999 “while the public and the politicians were preoccupied by bull market euphoria and the actions in Congress to impeach Bill Clinton”. In their effort to reduce social security outlays - and buttressed by a belief that CPI in fact overstated inflation - Alan Greenspan and others implemented some controversial modifications that factored in such issues as “hedonics”: an abstruse way of measuring increased satisfaction from goods. (Example: as described in a 2005 Wall Street Journal story, a specialist in the Bureau of Labor Statistics (BLS), which compiles the CPI, adjusted the price of a $329.99 TV down to $194.99 after concluding that an improvement in the quality of its screen over a previous model of the same size was worth at least $135. The TV still cost $329.99 retail, but the CPI recorded it as being worth nearly 30 per cent less.)

3. This is obviously unfair. It bails out irresponsible behavior, and by implication, punishes responsible behavior. Longer-term, unless there is a lot of pain felt by financial company executives " who, remember, don’t look like they have to go bankrupt to dump their bad loans on taxpayers " this creates a massive moral hazard problem. Further, if such a situation develops, it won’t be lost on voters, who will likely demand greater socialization of consequences of reasonably-foreseeable bad behavior by people who don’t make a million dollars per year. The ideological consequences of the last few weeks will take many years to play out, and conservatives are unlikely to happy about them.