I’m about halfway through Meltdown, and it’s fantastic. The 4th chapter in particular, which is devoted to the Austrian Business Cycle Theory, provides one of the clearest, most concise explanations of the ABCT I’ve seen in one place thus far. He then goes on to apply it to the current recession and to examine its application to the Great Depression. Even though I already had a good understanding of ABCT, Dr. Woods’ book has helped solidify my grasp of how credit expansion has fueled past and present financial crises.

I only wish I could afford to buy a couple hundred copies and send them to everyone I know. As it is, I will be quoting from it liberally. I doubt Dr. Woods would mind.

I got the audio book version, but I think I would have enjoyed the print version a lot better. I just kept zoning out all the time while I was listening to it. I don’t know why, might have been the narrator that did it.
Chapter 4 was indeed very good.

I read Meltdown about two months ago (in preparation for my term paper) and I was thoroughly impressed. In America’s Great Depression Murray N. Rothbard mentions that the ABCT is unpopular because “it’s difficult to understand”, but I believe the exact opposite. Thomas Wood’s book shows that the ABCT is the easiest theory to understand, because it’s the only theory that makes sense all-around, and it’s the only theory that is honest about spreading the blame to both the private sector and the public sector (even if it accurately pin-points the government as the main culprit).

Meltdown doesn’t go into mercantilism, and I believe that the book would have profited from a chapter on the explanation of the difference between a true free-market and a mercantilist market (where there is “corporate welfare”), and so to all readers of Meltdown I would also suggest reading Thomas diLorenzo’s “How Capitalism Saved America”.

The importance of this difference has pushed towards writing a blog entry on the topic (although it focuses on the prison-industrial complex) on my website (actually, I’m writing it right now). I don’t think it’s a distinction that is sufficiently well known amongst the general population, unfortunately (and government’s manipulation of these facts is what allows them to expand government’s role in curtailing our liberty).

I have sent a copy of ‘Meltdown’ to the Shadow Chancellor of the Exchequer in the UK in the hope that he will read it. Here we are governed by people who venerate Keynes. The only hope for our public finances is a Conservative win at the next election which fortunately is only a year away.

The “Community Reinvestment Act”. Now there’s a seed (I mean Acorn) of socialism if ever I saw one. If the failure of CRA does not demonstrate the failure of socialism in a microcosm, what does?

When it’s unequivically demonstrated that “The long and unholy history of the Community Reinvestment Act, whose very purpose was to push affirmative action into lending practices…” and “The act enabled certain community groups, such as ACORN, to effectively bully banks and other lending institutions into making massive mortgage loans to preferred low-income minorities” what makes socialists think they have a leg to stand on? Their experiment in providing the good life to the low-income avaricious masses has been an abject failure. They can see that, but their manifesto declares that such failures should be attributed to “corpoprate greed”.

This collapse suddenly explained why I was seeing so many brand new vehicles on our Interstates and highways, driven by people who apparently had no concept of what makes Life possible. They seemed starry eyed with disbelief that their wretched lives had been thrust from morbid, everyday Existence into the art and science of true Living.

I see most of them at bus stops these days. They should ask ACORN to arrange for free community bus rides.

OK, lets take just one of the statements and get to the truth. Why did the banks throw money to applicants with poor credit, little income, no money down, etc…

It started in the early 1980′s when corporations were downsizing their head count. Managers performance was tied to this head count reduction and like any good manager, they found they could layoff employees and replace them with temps because their cost was place in an operations account, not wages.

Soon outsourcing was the new mode of operation and corporations expanded this new way of cutting wages further. Banks that handled all aspects of home and construction loans started to adapt this business practice. They replaced their loan officers with mortgage brokers, their collection office with collection agencies, their home inspectors with private inspection firms.

By the 1990′s mortgage companies started to expand. With this expansion came abuses. Since they don’t have to service the loan, their profits were made by pushing through loans. If they had an applicant, they needed to push it through so they could get paid and the larger the loan, the larger was their payment. So it was these mortgage companies that doctored the loan applications to get them to the bank and the bank was accepting on good faith. Plus, they did not have the staff to provide a 100% audit of the results.

Then there was the banks, they really didn’t want to audit the results anyway. They just made the customer pay for mortgage insurance and they felt they were covered. Little did they know that the AIG failure would take this safety net away.

Those banks that didn’t outsource their jobs don’t have these problems. Just look at Hudson Valley Bank and other regionals, their home loans are performing very well.

There are reasonable answers to all the problems we are facing. You just need understand the business of housing, banking, accounting and corporate operations to see the real causes.

“I have sent a copy of ‘Meltdown’ to the Shadow Chancellor of the Exchequer in the UK in the hope that he will read it. Here we are governed by people who venerate Keynes. The only hope for our public finances is a Conservative win at the next election which fortunately is only a year away.”

Good idea re sending Osborne a copy. Whether he’ll pay any attention to it is another matter. Even if it convinced him he’d be too scared to talk about ending fractional reserve banking and bringing back the gold standard in case the Labour Party attacked him as a crank.

Alas the Tories have tended to favour Friedmanite monetarism and the Chicago School rather than the Austrians. Lady Thatcher may well have shouted “this is what we believe” while banging a copy of Hayek’s Constitution of Liberty on the table but I don’t know how familiar she was with Prices and Production or the works of von Mises.

I have purchased and read the American version of Meltdown but I shall certainly get hold of the British version when it’s released. There’s plenty of Austrian analysis of the American economy and American economic history but unfortunately not much on Britain.

Richard, You are right, of course. I certainly don’t expect George Osborne to start calling for the end of fractional banking or for the re-introduction of the gold standard. He is saying the right things about cutting public sector spending and living within our means and I just wanted him to be aware of the Austrian analysis of the current crisis. Whether he actually reads the book remains to be seen.