Sunday, January 20, 2008

Paul Krugman on Subprime

The fundamental cause of the sub-prime mess, according to Paul Krugman, is:

The real sin, both of the Fed and of the Bush administration, was the failure to exercise adult supervision over markets running wild.

His advice:

But let’s hope that when the dust settles a bit, Mr. Bernanke takes the lead in talking about what needs to be done to fix a financial system gone very, very wrong.

More here.

So the bottomline of Krugmanian approach to preventing economic crisis is:

Crisis ---> implies more regulation is need--->more regulation is implemented ----> if crisis still recurs ---> that means more and more regulations will be needed---> these additional regulations are implemented as well ---until the market is finally choked because of too many regulations, and there won't be any crisis. This then proves government regulation is effective in preventing crisis.

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