BERKELEY - For 15 months, the United States Federal Reserve, assisted by the financial regulators of the US Treasury, have been trying to make the macroeconomic consequences of the American mortgage-backed securities financial crisis as small as possible - trying, above all, to avoid a deep depression.
They have also had three subsidiary objectives:
- Keep as much economic activity as possible under private-sector control, in order to ensure that what is produced is what consumers really want.
- Prevent the princes of Wall Street who led us into the crisis from profiting from the systemic risk that they created.
- Ensure that homeowners and small investors do not absorb too much loss, for their only "crime" was to accept bad risks, which they would not have done in a world of properly diversified portfolios.



BERKELEY - After the second 40% decline in America's Standard & Poor's composite index of common stocks in a decade, global investors are shell-shocked. Funds invested, and reinvested, in the S&P composite from 1998-2008 have yielded a real return of zero: the dividends earned on the portfolio have been just enough to offset inflation. Not since 1982 has a decade passed at the end of which investors would have been better off had they placed their money in corporate or United States Treasury bonds rather than in a diversified portfolio of stocks.