![]() When property prices declined and foreclosures spread, the values of these securities also declined, decimating bank balance sheets. It’s true that some household borrowing was channeled to risky instruments like adjustable-rate mortgages and much of the lending by banks was turned into complex securities backed by debt. The long-term solution is more government action to restrain and supervise financial institutions, although Posner would wait until the dust settles before reregulating. The government had to shore up the system with extraordinary measures. In 2007–08 the twin bubbles collapsed, resulting in a steep downturn in economic activity. “Free market ideology” left banks and other financial firms free to take huge risky bets on mortgages, which they did. Here’s a capsule version: Deregulation of banks combined with cheap and easy credit to cause interlinked debt and real estate bubbles. His account, unfortunately, merely hews to current conventional wisdom. ![]() ![]() Posner describes well-known events-the failure of investment banks Bear Stearns and Lehman Brothers, the series of bailouts by the Treasury and the Federal Reserve, the stimulus package passed by Congress-then tries to explicate the causes of the crisis. Alas, he provides neither fresh material nor an interesting perspective. ![]() ![]() A federal judge with a grounding in economics, Posner would seem to be an ideal person to tackle this complicated subject. Richard Posner’s latest book belongs to the fast-expanding cottage industry of financial crisis books. ![]()
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