Why capitalism "doesn't work" probably lies with the special interest groups. Curb these people and you'll get a more workable system that clears.
1. You still haven't provided any evidence that no-doc loans were disproportionately given to folks living far from city centers. 2. You still haven't provided any evidence that spending on items other than energy declined in the run-up and was simultaneous with increasing oil prices. I wouldn't be surprised if that's what happened, but as you're making the argument, you do have to provide something other than "I said so and that's it." 3. Even if the first two are true, immediately that prices came down after the fall 2008 crisis, everything should have gone back to normal, since what according to you was the cause of all this went away. So, you'd have to further explain why that didn't happen. Here's a source for oil prices: http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp Notice two things: 1 - The price fell sharply in 2009. 2 - The inflation-adjusted price in 2008 was less than that in 1980. Now, kindly prove your argument.
http://www.uce3.ucsb.edu/WP_034.pdf "The U.S. housing collapse in 2007 is widely blamed for inducing a financial crisis that spread to the real economy and caused a severe and prolonged downturn. This paper investigates the role of rising gas prices and a dramatic gas price shock in triggering the housing market collapse. Specifically, we develop a parsimonious model of housing demand that integrates the Alonso-Muth model of urban form and the Poterba model of housing investment in order to demonstrate that unanticipated increases in gas prices increased the cost of work commutes, lowering the value of homes away from the city center and increasing foreclosure rates." As for why things didn't immediately go back to the status quo ante once oil prices went down, it is normal in bubbles, like the one we had in housing, that once the air goes out, they don't reflate. And I already said why the spike was worse, which was because of higher household debt levels, leaving less income for non-debt-service related consumption.
The Kaufman Foundation has studied this issue in depth. Conclusion: Most jobs are created by the middle class. There is also a plethora of data showing that economic growth is associated with borrowing (deficits) and spending by the government. Keynes was a very bright economist and to the extent that his ideas have been tested properly, he has been shown to be right. Among many things where he has been proven to be right, is assessment the problems that would arise from the Treaty of Versailles were spot on. He believed that governments should leverage up when the private economy leveraged down in time of recession, but he also said that in boom times government needed to cut spending or tax more. The U.S. is good at applying the first part of his prescription for managing an economy but very bad at applying the brakes when they're needed to prevent damaging excesses. The problem for the U.S. is structural in that the CB controls one part of the cycle, but Congress the second. Needless to say, Congress has failed miserably at carrying out its part of the prescription.
I am less and less a fan of Obama as time goes on. But with the experience he has gained in term one, he may prove to be a better President in term two. He is obviously very smart. And what a refreshing change that is! He is not talking about a failure of capitalism in the posted video, but rather a failure of government to protect free enterprise from capitalists. Capitalism is great but only when government plays its proper role. Unfettered, capitalism will deteriorate into cartels and monopolies. Eventually capitalists, because they have accumulated capital, will, if they are allowed to, seize control of the government, and the form of capitalism that then arises is what many call corporatism. That's an unseemly form of capitalism, and the form we have in the United States today. It's a very pernicious form. For reference, see definitions of capitalism in any comprehensive dictionary. The biggest mistake I see many posters make on ET is to confuse free enterprise with capitalism, even speaking of them as though they are one in the same. In reality capitalists hate free enterprise! I don't blame the capitalists, after all I'm one of them. But I do blame an incompetent and moronic government for not holding the capitalists in check.
Greenspan believed in unfettered capitalism and that market would self correct excesses. He was the chief regulator, but he did not believe in regulation, so he didn't regulate. He was right however! The markets did correct themselves, or started to. But we did not like the result of self-correction. It was leading to massive failures of our largest institutions with what would have been equally massive economic upheaval. Thus the government, was forced to intervene, and at the eleventh hour, did so. It would have been much better for all had Greenspan done his job properly. The Housing bubble and the mortgage/CDO/CDS crises were entirely avoidable! The video indicates that Obama understands the dangers of unfettered markets and not so much the failure of, but rather the undesirable features of Greenspan's economic theories.
Wasn't Greenspan an Ayn Rand follower..... ....who believed in Central Management via a Central Bank?