Read Arnold Kling’s history of the policies that created the great recession
Using only the executive summary, what does Kling think caused the Financial Crisis of 2008? (Use only one sentence.)
One page 5, what is “the fact?” and what does this “fact” mean to you?
Briefly summarize the four components of the Financial Crisis?
On page 10, Kling states, “These property bubbles (in the U.K. and Spain) cannot be blamed on U.S. policy.” How confident are you on that point? Is Kling wrong?
Kling’s matrix of causes, gives almost all weight to what two factors? What three factors are almost completely not responsible?
Many have blamed designer financial (my term) like CDS and CDO and the shadow banking system for the collapse. How do these fit into Kling’s narrative?
Outline the progression of policy that caused/responded to economic conditions in the 30s, 70s and 80s and 00s.
What role did the mortgage interest deduction have on housing market?
What institution invented and allowed the expansion of mortgage-backed securities?
What is regulatory arbitrage?
Why did the Basel agreement create an advantage for mortgage securitization?
Did the Federal Reserve (and presumably other regulatory agencies know and even encourage regulatory capital arbitrage? What author does Kling cite to establish this?
What did the 2002 modification of the Basel Rules do to capital requirements? (See figure 4)
Summarize the Shadow Regulatory Committee’s statement 160.
Did non market institutions, such as the IMF and Bernanke, think, in 2006, that financial innovation had make the banking sector more or less fragile?
What is time inconsistency? (You can look this up elsewhere.)
How might “barriers to entry” by related to “safety and soundness?”
How did credit scoring and credit default swaps enlarge the mortgage securities market?
Why, up until 2007, did we think that monetary expansion was all that was needed to mitigate the impact of financial crises?
Suppose that financial markets are inherently unstable. What does this mean are two goals of regulation and regulators?
Why are type two errors so problematic? (Two reasons.)
How could we make the banking sector easy to fix?