European Voice – Europe may be laying the foundations for the next financial bubble, through its monetary, industrial and regulatory policies.

In the midst of the worst crisis in half a century, it is easy to forget that the real problem is not the bust but what preceded it: a boom filled with bad investments.

The boom was a natural consequence of too much easy money for too long. That policy was itself a response to the bursting of the dotcom bubble, to which Alan Greenspan and the Federal Reserve responded by cutting interest rates from 6.5% to 1% – and keeping them that low for a whole year. The result was a market drowned in cheap money.

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Tags: alan-greenspan, boom, bust, cheap money, dotcom bubble, easy money, europe, european voice, federal-reserve, financial bubble, foundations, half a century, interest rates, investments, midst, natural consequence, regulatory policies

American Thinker – The credit system has broken down. Banks have cooled on lending (maybe because they are not sure if the Obama administration will force a cram down in the future that would result in their loans being worth much less than they thought?). But the system also relies on hedge funds to purchase loans that banks make and package as securities.

Hedge funds would stand ready to buy these loans from banks, releasing more money that could then be used to make additional loans. Hedge funds-often heavily leveraged-made billions over the years with these types of securities. They often rode a wave of lower interest rates that inflated the value of their holdings. It was relatively easy money (especially if you were sophisticated and large enough to borrow overseas in Japan where interest rates were miniscule).

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Tags: american-thinker, banks, billions, cram, easy money, interest rates, japan, loans