Monday, November 24, 2008

The Economic Crisis in a Paragraph

An interesting and succinct description of the economic crisis facing us, by Sebastian Mallaby:

The financial crisis has morphed into several simultaneous crises that feed upon each other. The real estate bust crippled the banks. Crippled banks starved companies of credit. Starved companies laid workers off. Laid-off workers defaulted on mortgages, deepening the bust in real estate. By a similar process, crippled financial institutions stopped making auto loans, which caused people to stop buying cars, which pushed the carmakers to the brink. If the carmakers go down, a whole new round of job losses and mortgage defaults will slam into the financial system.

It becomes clearer than ever that allowing the real estate bubble was a huge mistake. But everyone was on the take, so nobody was much interested in looking ahead and seeing the risks. This is why greed, the supposed basis of free-market economics, cannot be allowed to control the economic system. It has to be someone looking out for the larger good and the future, i.e. independent regulators willing to blow the whistle.

No comments:

Post a Comment