Government Did Not Cause The Recession

We are in the midst of the worst recession since the Great Depression. Economists and commentators alike are united in blaming the banks and the lack of restraint on them for driving us over the cliff. Yet there is a myth common on the internet that it was the government that caused the recession. Allegedly it was the government that forced the banks to lend extra and fueled the boom. There are three parts to this argument. It is claimed the government caused the recession by guaranteeing to bail out banks if they got in trouble, by forcing banks to lend more through the Community Reinvestment Act, Fannie Mae and Freddie Mac and by keeping interest rates artificially low. These arguments are unable to explain the timing of the crisis, its magnitude and the fact that it’s global effect. These claims simply do not stand up. Continue reading “Government Did Not Cause The Recession”

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The Man Who Saw The Crash Coming

The financial crash in 2008 came as a surprise to most economists. The believed markets were sufficient and will produce prosperity for all if left to their own devices. However one little known economist had predicted it and developed a theory explaining it. He devised a theory explaining how lenders become lax with their standards, over optimistic and over extend themselves leading to a crash. Even more impressively he did this back in the 70s and 80s so can’t be accused of jumping on the bandwagon. His name is Hyman Minsky (1919-1996) and the theory is called “The Financial Instability Hypothesis”. Continue reading “The Man Who Saw The Crash Coming”