Friday, July 17, 2009

Selective Expert Hindsight

Joe Stiglitz circa 2002

the risk to the government from a potential default on GSE [Fannie Mae] debt is effectively zero...the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.

Joe Stiglitz in the recent Critical Review:
The main cause of the crisis was the behavior of the banks—largely a result of misguided incentives unrestrained by good regulation. Conservative ideology, along with unrealistic economic models of perfect information, perfect competition, and perfect markets, fostered lax regulation, and campaign contributions helped the political process along. The banks misjudged risk, wildly overleveraged, and paid their executives handsomely for being short-sighted; lax regulation let them get away with it—putting at risk the entire economy. The mortgage brokers neglected due diligence, since they would not bear the risk of default once their mortgages had been securitized and sold to others. Others can be blamed: the ratings agencies that judged subprime securities as investment grade; the Fed, which contributed low interest rates; the Bush administration, whose Iraq war and tax cuts for the rich made low interest rates necessary.

6 comments:

Anonymous said...

Stiglitz is a sad person. He chooses to live in the world of rhetoric over the one of reason.

He no longer is relevant in the public discourse.

Anonymous said...

It was the loans to the Negros that caused this enormous problems.

If only the Republicans controlled the government in 2002, we would not be in this mess.

Oh, why oh why, did we not listen to such Republican minds as Cocaine Larry and Ben Stein!

Teresa Lo said...

But some believe he is "The Most Misunderstood Man in America".

See http://economistsview.typepad.com/economistsview/2009/07/the-most-misunderstood-man-in-america.html

Eric Falkenstein said...

Comedy gold, Teresa. I think it's obvious Stiglitz doesn't have the temperament to work on a team that actually wants to get something done.

Anonymous said...

Yes, unlike the Reagan Administration that had Larry Kudlow as Chief Economist at the OMB.

No wonder budgets were balanced.

InVivoAnalytics.com said...

Maybe we should call him The Lone Gunman of Econ.