{"id":198188,"date":"2007-12-04T17:39:00","date_gmt":"2007-12-04T22:39:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2007\/12\/04\/krugman-nails-the-root-cause-of-the-liquididy-insolvency-crisis\/"},"modified":"2007-12-04T17:39:00","modified_gmt":"2007-12-04T22:39:00","slug":"krugman-nails-the-root-cause-of-the-liquididy-insolvency-crisis","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2007\/12\/04\/krugman-nails-the-root-cause-of-the-liquididy-insolvency-crisis\/","title":{"rendered":"Krugman Nails the Root Cause of the Liquididy\/Insolvency Crisis"},"content":{"rendered":"<p>Basically, he <a href=\"http:\/\/www.nytimes.com\/2007\/12\/03\/opinion\/03krugman.html?ex=1354424400&amp;en=bab1f457f7bbb2b7&amp;ei=5090&amp;partner=rssuserland&amp;emc=rss\">sees the cause as being the free market fundamentalism that is practiced by regulators, brokers, and politicians<\/a>.  I wholeheartedly agree.<\/p>\n<blockquote style=\"color: rgb(0, 0, 153);\"><p>This time, market players seem truly horrified \u2014 because they\u2019ve suddenly realized that they don\u2019t understand the complex financial system they created.<\/p><\/blockquote>\n<p>This is, of course, a symptom, not the cause, but he <span style=\"font-weight: bold;\">does<\/span> see the cause too.<\/p>\n<blockquote style=\"color: rgb(0, 0, 153);\"><p>How did things get so opaque? The answer is \u201cfinancial innovation\u201d \u2014 two words that should, from now on, strike fear into investors\u2019 hearts.<\/p>\n<p>O.K., to be fair, some kinds of financial innovation are good. I don\u2019t want to go back to the days when checking accounts didn\u2019t pay interest and you couldn\u2019t withdraw cash on weekends.<\/p>\n<p>But the innovations of recent years \u2014 the alphabet soup of C.D.O.\u2019s and S.I.V.\u2019s, R.M.B.S. and A.B.C.P. \u2014 were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead \u2014 aside from making their creators a lot of money, which they didn\u2019t have to repay when it all went bust \u2014 was to spread confusion, luring investors into taking on more risk than they realized.<\/p>\n<p>Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers,<span style=\"font-weight: bold;\"> committed to the view that the market is always right, simply ignored the warning signs<\/span>. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.<\/p><\/blockquote>\n<p><span style=\"font-style: italic;\">(emphasis mine)<\/span><\/p>\n<p>So, when does he get his Nobel?<\/p>\n<p>Go and read the whole thing<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Basically, he sees the cause as being the free market fundamentalism that is practiced by regulators, brokers, and politicians. I wholeheartedly agree. This time, market players seem truly horrified \u2014 because they\u2019ve suddenly realized that they don\u2019t understand the complex financial system they created. This is, of course, a symptom, not the cause, but he &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1261,973,1002,978],"tags":[],"class_list":["post-198188","post","type-post","status-publish","format-standard","hentry","category-bubble","category-economy","category-good-writing","category-politics"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/198188"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=198188"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/198188\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=198188"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=198188"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=198188"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}