Book contents
- Frontmatter
- Contents
- Acknowledgments
- 1 Economic Crises, Economic Policy, and Economic Analysis
- 2 Goods and Services Markets versus Asset Markets
- 3 Asset Performance
- 4 The Great Depression
- 5 The Postwar Recessions
- 6 What May Have Triggered or Sustained the Housing Bubble (1997–2006)?
- 7 The Bubble Bursts
- 8 Blindsided Experts
- 9 What Might Be Done?
- 10 Learning from Foreign Economic Crises
- 11 Summary: What Have We Learned?
- Index
- References
9 - What Might Be Done?
Published online by Cambridge University Press: 05 June 2014
- Frontmatter
- Contents
- Acknowledgments
- 1 Economic Crises, Economic Policy, and Economic Analysis
- 2 Goods and Services Markets versus Asset Markets
- 3 Asset Performance
- 4 The Great Depression
- 5 The Postwar Recessions
- 6 What May Have Triggered or Sustained the Housing Bubble (1997–2006)?
- 7 The Bubble Bursts
- 8 Blindsided Experts
- 9 What Might Be Done?
- 10 Learning from Foreign Economic Crises
- 11 Summary: What Have We Learned?
- Index
- References
Summary
This is the paradox at the heart of the financial crisis. In the past few years, we’ve seen too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying. Today, however, our problem is exactly the opposite.
The President’s recovery strategy is addressing the housing market. The vicious cycle of rising foreclosures leading to declining home prices, leading to rising foreclosures – must be contained. This problem is at the heart of our economic crisis.
Through direct interventions, using the GSEs to bring down mortgage rates and make possible refinancings for creditworthy borrowers who have lost their home equity as house prices decline, and through setting standards and providing significant financial subsidies for measures directed at payment relief to prevent foreclosures, we are achieving several objectives.
– Lawrence Summers at The Brookings Institution, March 13, 2009The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
– Friedrich A. Hayek, The Fatal Conceit, 1988, p. 76- Type
- Chapter
- Information
- Rethinking Housing BubblesThe Role of Household and Bank Balance Sheets in Modeling Economic Cycles, pp. 223 - 250Publisher: Cambridge University PressPrint publication year: 2014