The
sub prime crisis in the US has little
to do with the mortgage market, or subprime
mortgages per se, but rather with the
basic structure of the financial system
that produces overestimates of creditworthiness
and underpricing of risk. The bottom line
is that the system has been structured
to make credit too cheap, leading to excessive
risk in order to provide higher returns.
The financial fragility that was identified
in Minsky's work cannot be eliminated,
only damped by systemic policies. However,
it is possible to eliminate fragility
that emerges from the structure and regulation
of the financial system.
March 20, 2008.
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