"A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression"
What examples of economic crises can help explain this one?
Well, the closest is the Japanese. The Japanese in the 1980s had a tremendous housing bubble. And it burst in 1989, and it brought all the banks down with it. And Japan struggled for a decade to climb out.
The economy as a whole was simply stagnant for 10 years. It's called an L-shaped depression: sharp drop and then it continues at a low level for a number of years. So the notion that housing can bring down banking and banking can bring down the rest of the economy—that's happened many times in many different countries. No one, or very few, expected it to happen in the United States.
Is the crisis an opportunity?
I don't like that idea that a crisis shouldn't be wasted. I really think that's a very bad thing to say because it makes it seem as if the crisis is kind of trivial; it's a pretext.
You're referring to Rahm Emanuel's statement that a crisis shouldn't be wasted?
Exactly. If it's a genuine emergency, then you bend all your efforts to cure the emergency. Because this is an emergency, it should be attacked on a completely bipartisan basis without taking advantage of the emergency to push a partisan agenda. So that's a very disturbing feature of how some people are reacting to this.
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Reader Comments
Art for Financial Crisis
An Artist who lives in Vienna creates a Sculpture for the current financial Crisis, I think there are some really deep meanings in it.
www.mengcomment.com
People on the left "taking over the bank industry..."
While I'm familiar with the opinions on the right who endorse a laisse-faire "invisible hand" approach to this crisis, I have yet to encounter anybody who wants to "take over the banking industry." I consider myself a few notches left of center on most issues, and I do not know anybody, such as Paul Krugman or Barry Eichengreen, or Brad DeLong, or any other economist of this stripe, that wants to "take over banks."
What we want, and have always wanted, is increased regulation of banks.
regulation
I will be intrigued to see what Posner's take on what form the additional regulation should have been, and how that would have prevented this crisis. One view is that we had a massive bubble in a $20T market (US real estate), and when that popped, there was no avoiding a massive financial crisis. Japan had the same thing, and that economy was (and is) incredibly regulated. Europe is more heavily regulated than we are, and they are in as bad of shape. I work in public/private investment companies, and the more the government tries to regulate the markets I operate in, the more incentives are inefficiently skewed, and unintended consequences arise to screw things up. How much of this past crisis was because of government (low rates, pressure on banks to lend and lower standards, Fannie and Freddie behaving stupidly with a government guarantee) and incompetent officials like Barney Frank and George Bush watching all of this happen. Now we think government needs to get more involved? Wall St. is bad, but they tend to suffer harsh consequences when they screw up. Government officials like Barney Frank get more power when they screw up. We are headed down a bad path.
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