Academic Commons

Articles

The Anatomy of a Murder: Who Killed America's Economy?

Stiglitz, Joseph E.

The main cause of the crisis was the behavior of the banks--largely a result of misguided incentives unrestrained by good regulation. Conservative ideology, along with unrealistic economic models of perfect information, perfect competition, and perfect markets, fostered lax regulation, and campaign contributions helped the political process along. The banks misjudged risk, wildly overleveraged, and paid their executives handsomely for being short-sighted; lax regulation let them get away with it--putting at risk the entire economy. The mortgage brokers neglected due diligence, since they would not bear the risk of default once their mortgages had been securitized and sold to others. Others can be blamed: the ratings agencies that judged subprime securities as investment grade; the Fed, which contributed low interest rates; the Bush administration, whose Iraq war and tax cuts for the rich made low interest rates necessary. But low interest rates can be a boon; it was the financial institutions that turned them into a bust.

Subjects

Files

Also Published In

Title
Critical Review

More About This Work

Academic Units
Economics
Published Here
April 1, 2013
Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.