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Another good reevaluation of the causes of the financial crisis that similarly argues against sub-prime mortgages being the main culprit: http://econlog.econli
by CryptoPunk 9y ago
Another good reevaluation of the causes of the financial crisis that similarly argues against sub-prime mortgages being the main culprit:
http://econlog.econlib.org/archives/2016/05/dont_solve_prob.html http://econlog.econlib.org/archives/2016/05/dont_solve_prob....
The explanation is much simpler than others offered, but often simple problems are the ones most overlooked.
- eru 9y agoIndeed. The economy could have easily dealt with a few banks failing---if the central banks would have kept nGDP up. Australia, and even more Israel, barely noticed the Great Depression. Britain also did much better than American and the Euro area, thanks to a competent reaction by the Bank of England.
- CryptoPunk 9y agoThe article points to the FDIC and the misalignment of incentives it creates when it is combined with small undiversified banks, as the primary cause of the crisis. The note on the central bank's monetary policy relates to the Great Depression, not the 2008 crash.
- eru 9y agoYou are right. I was interpreting things a bit more liberally: the housing crisis and banking crash would have stayed relatively small, if the Great Recession wouldn't have started: At some point nGDP started to fall, giving the housing market and banks more trouble.