Reasons to be concerned with the causes are two fold: punish those responsible and prevent a recurrence of the crisis.
An easy answer is easy credit but that ignores many of the players. Easy credit in a vacuum can't cause a crisis.
Anybody person who bought a home with the sole intention of flipping it and no reasonable expectation of being able to rent it and cover all costs is to blame.
Anybody who lied on a mortgage application is to blame.
Any banker who knowingly lent money to someone he suspected was getting in over his head is to blame.
Any investment banker who suspected that the quality of loans he was repackaging was not AAA is to blame.
kathryna, 373 - days ago
This goes especially to Fannie Mae, who packaged most of the loans for initial sale
tomhagan, 373 - days ago
But suppose the real cause is more fundamental than mortgage flipping or a lack of proper regulation and oversight. Suppose our fractional reserve banking system is inherently unsustainable, doomed eventually to collape in a credit crunch just like we are experiencing.
There are those who think so, and who have some compelling arguments for their case. I am not sure I agree with them yet, but I find their analysis fascinating, and it transcends that offered by Juan in his excellent talk.
Juan correctly points out that the current bailout schemes can't work, and may do more harm than good. But perhaps his austerity prescription is also doomed, unless we chuck fractional reserve banking for full reserve banking.
At least that's what the full reserve banking advocates say, and they offer up a surprisingly pain-free solution for our national debt---which sounds too good to be true. But I have not yet found out why.
Reasons to be concerned with the causes are two fold: punish those responsible and prevent a recurrence of the crisis.
An easy answer is easy credit but that ignores many of the players. Easy credit in a vacuum can't cause a crisis.
Anybody person who bought a home with the sole intention of flipping it and no reasonable expectation of being able to rent it and cover all costs is to blame.
Anybody who lied on a mortgage application is to blame.
Any banker who knowingly lent money to someone he suspected was getting in over his head is to blame.
Any investment banker who suspected that the quality of loans he was repackaging was not AAA is to blame.
This goes especially to Fannie Mae, who packaged most of the loans for initial sale
But suppose the real cause is more fundamental than mortgage flipping or a lack of proper regulation and oversight. Suppose our fractional reserve banking system is inherently unsustainable, doomed eventually to collape in a credit crunch just like we are experiencing.
There are those who think so, and who have some compelling arguments for their case. I am not sure I agree with them yet, but I find their analysis fascinating, and it transcends that offered by Juan in his excellent talk.
Juan correctly points out that the current bailout schemes can't work, and may do more harm than good. But perhaps his austerity prescription is also doomed, unless we chuck fractional reserve banking for full reserve banking.
At least that's what the full reserve banking advocates say, and they offer up a surprisingly pain-free solution for our national debt---which sounds too good to be true. But I have not yet found out why.
For more on this, see.
http://whatsnotso.blogs.com/whatsnotso/2008/10/will-the-financial-crisis-change-the-game.html
Here is the best analysis I have seen of the causes of the crisis from Simon Johnson of MIT Sloan School:
http://baselinescenario.com/2008/11/10/baseline-scenario-111008/