Perspectives: The Possible Misdiagnosis of a Crisis
Posted: 12 Apr 2011
Date Written: April 11, 2011
Most explanations of the 2007-08 financial crisis - including excessive leverage, subprime mortgages, exotic derivatives, reckless risk taking, and easy money that spawned a housing bubble - are inconsistent with elementary principles of finance. The author explains the inconsistencies and suggests an alternative diagnosis that is fully compatible with rationality.
Keywords: Economics, Aggregate Demand and Aggregate Supply, Fiscal Policy, Macroeconomics of an Open Economy
Suggested Citation: Suggested Citation