Paul Krugman recently posted a very short blog "A Gigantic Scam", where he allowed Andrew Haldane of the Bank of England to describe great hoax perpetrated on investors the world over during the boom years before The Crash.
This whole incident makes the phrase "malefactors of great wealth" seem all too relevant. It was coined in a speech of Theodore Roosevelt in 1907. In 1936, Franklin D. Roosevelt revisited this phrase in a campaign speech that that sounds almost like it could be made today. It is evident that much of the financial investment that boomed during the mid 00s was based upon what might be perceived as a ponzi scheme. Investment in bonds which underwrote housing loans sometimes ended up being folly when the lending was made to persons who were at risk of default and the underlying assets, the houses, were overvalued. The housing market may have reached its bottom at this point, but they've fallen a long way, as had the credibility of any company which sold the subprime mortgages to investors.
It is interesting to contemplate that Rick Perry, running for U.S. president, called Social Security a ponzi scheme, when everyone who has paid into Social Security long enough and has reached retirement age has gotten their pension and will continue to, with a minor modification to the program to increase revenue or slow spending growth.
There are two big scams going on right now. One is the failure to address the institutional failures of Wall Street by regulating appropriately. Unfortunately, the Republican Party took over Congress before the Democrats had done the heavy lifting on regulating and re-regulating financial investment. The other is that there has been a myth that fiscal stimulus will not increase aggregate demand and, therefore, employment. SocialMacro has tried to address the economic reasons for intervention, how the first round of stimulus was not big enough to made a significant dent in unemployment and addressed what is a liquidity trap and why I believe we are in one. The fact that the United States is in a liquidity trap makes the arguments for stimulus much stronger, since (a) it makes it cheaper for the government to borrow to raise aggregate demand and (b) the 0% interest rate means that the government's borrowing can not realistically crowd out private investment according to the IS/LM model.
The first scam basically needs to be addressed so that we do not run into similar problems again and the second scam because there are a lot of people who need work and lots of income they and others are not getting because aggregate demand is not "bouncing back."