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I'm currently taking the Coursera course "The Global Financial Crisis" [1] (from Yale) and quite enjoying it. Their answer to what caused the crisis is bubble t

I'm currently taking the Coursera course "The Global Financial Crisis" [1] (from Yale) and quite enjoying it. Their answer to what caused the crisis is bubble thinking from all involved, not moral hazard on sub-prime loans or government failure. They back their finding up various studies, which seem convincing to me (but I'm a beginner, so don't take my word for it). [1] https://www.coursera.org/learn/global-financial-crisis https://www.coursera.org/learn/global-financial-crisis

tinco 11y ago
The bubble thinking is not mutually exclusive with subprime loans and government failure. Bubble thinking makes banks take risks that they are blind to. I'm not super familiar with how debt is regulated in the US, but in The Netherlands the mortgage industry has been much more tightly regulated since 2008. If it is the governments task to regulate debt, then a mass default of course implies that they failed to do that properly. If it was harder for banks to supply subprime loans, then that would have tempered the fire feeding the bubble, and the crisis could have been smaller. Of course, you could also take a more liberal viewpoint and not blame it on under-regulation of the government, but instead on mistakes of the big banks. I'm not that liberal though, so perhaps someone else can explain how liberals think debt crises should be averted. If I'd have to guess the simple answer would be that they would say the banks should've fallen so that the healthy banks would be the only ones left standing, so the whole event could be a proper free market process (so they also would say the government failed by bailing out some of the banks).
- henrik_w 11y ago
  The evidence they present points to bubble thinking, not the other two reasons. The material in question is here: https://www.coursera.org/learn/global-financial-crisis/home/week/4 https://www.coursera.org/learn/global-financial-crisis/home/...

tinco 11y ago

The bubble thinking is not mutually exclusive with subprime loans and government failure. Bubble thinking makes banks take risks that they are blind to. I'm not super familiar with how debt is regulated in the US, but in The Netherlands the mortgage industry has been much more tightly regulated since 2008. If it is the governments task to regulate debt, then a mass default of course implies that they failed to do that properly. If it was harder for banks to supply subprime loans, then that would have tempered the fire feeding the bubble, and the crisis could have been smaller. Of course, you could also take a more liberal viewpoint and not blame it on under-regulation of the government, but instead on mistakes of the big banks. I'm not that liberal though, so perhaps someone else can explain how liberals think debt crises should be averted. If I'd have to guess the simple answer would be that they would say the banks should've fallen so that the healthy banks would be the only ones left standing, so the whole event could be a proper free market process (so they also would say the government failed by bailing out some of the banks).

henrik_w 11y ago
The evidence they present points to bubble thinking, not the other two reasons. The material in question is here: https://www.coursera.org/learn/global-financial-crisis/home/week/4 https://www.coursera.org/learn/global-financial-crisis/home/...