economics

How many CRA loans, how much affirmative action payout?

From 2000 to 2007, blacks and hispanics received six hundred and thirteen billion dollars more in home purchase mortgages than they would have received had they received the same proportion of the money that they received in 1999 – a figure that strikingly resembles the total cost of the bailout. In 1999, people warned that …

economics

The cause of the subprime crisis

The subprime crisis was caused by regulation and the expectation that some companies were too big to fail – that if those companies got in trouble, the government would make sure their debtors were paid. What did regulation tell financiers about subprime loans? It told them they had better make subprime loans, or face a …

economics

The cause of the crisis

The bailout will fail. If the government offers implicit or expicit debt guarantees, if a firm is “too big to fail, then that firm can easily borrow lots of money cheaply, and lend that money to people not so guaranteed at a higher interest rate. Free Money! The too big to fail firm is going …

economics

The cause of the crisis

If a company is too big to fail, then people will take risks they would not otherwise take.  “Too big to fail” is an implicit subsidy for taking big risks – which results in people taking big risks. So we have just paid people seven hundred billion dollars for taking stupidly big risks. What do …

economics

Wall Street Journal explains the bailout crisis

Wall street journal reports that this crisis was the predicted result of politically correct lending policies commanded by the Clinton administration, continued and worsened by the Bush administration. Carpe Diem reports that this crisis was predicted when these policies were introduced by the Clinton Administration.  In 1999, the NY Times observed: Fannie Mae is taking …

economics

The financial crash

Brad de Long looks at the financial crisis, and concludes that the wise and good hand of government is necessary. Third, the market fundamentalists in other sectors will need to be quiet for quite a while. We have just seen financial markets rife with moral hazard, agency, and adverse selection problems crash spectacularly. Is this …