Thursday, March 12, 2009

Funny money

This American Life did a couple of shows The Giant Pool of Money and Bad Bank on the financial crisis which I recommend. The second makes what I think is an important point. The banks got into trouble by making a lot of bad loans. Inducing them to make a lot more bad loans isn't going to fix things in the long run. We need to find a way to transition to a less leveraged world in which bad credit risks find it harder to get loans. This will be hard on some industries like housing or automobiles where much of the demand has come from buyers using funny money (by which I mean loans which they were unlikely to repay).

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