What do you get when you mix academia of economics, perverse incentives, and the illusion of sophistication (overconfidence)?
You get a crisis with far-reaching consequences (2008) because central bankers don't think in second & third order effects.
What will happen this time?
You get a crisis with far-reaching consequences (2008) because central bankers don't think in second & third order effects.
What will happen this time?
It is truly astonishing to think just how much worse the fragility could be?
We have a situation patched up by years of artifical monetary policy.
The hidden risk could be multiples of that witnessed in 2008 because the excesses are multiples of those witnessed prior to 2008.
We have a situation patched up by years of artifical monetary policy.
The hidden risk could be multiples of that witnessed in 2008 because the excesses are multiples of those witnessed prior to 2008.
Expect it to get a little worse next time.
"When we bailed out banks that had created their own misfortune [in 2008], we called it a 'moral hazard,' because the bailout absolved the bank's bad acts & created an incentive for it to make the same bad loans again." — Eliot Spitzer
"When we bailed out banks that had created their own misfortune [in 2008], we called it a 'moral hazard,' because the bailout absolved the bank's bad acts & created an incentive for it to make the same bad loans again." — Eliot Spitzer
Incentives drive behavior & if you incent the risky kind, 2nd order consequences await.
We don't know what the catalyst will be. Timing is impossible, but fragility is obvious.
It’s economics 101: when leverage is free, overleverage is economic cancer — just a matter of time.
We don't know what the catalyst will be. Timing is impossible, but fragility is obvious.
It’s economics 101: when leverage is free, overleverage is economic cancer — just a matter of time.
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