Minsky v. Mises–Hayek

Daniel Kuehn draws a distinction between Minsky and Rothbard. I’ve made the comparison on this blog, as well — well, I’ve compared it to Mises–Hayek business cycle theory, more generally. Kuehn’s point regarding both economists’ views on risk is a good one, and I’d agree that Minsky is more sophisticated in that regard. But, on the other hand, I think when we look at the Mises–Hayek theory and focus on the effects on the financial sector, it is far more complete than the Minsky cycle.

I don’t know Minsky very well (I’ve only read part of his John Maynard Keynes — I will have to get back to it this summer); what I do know, I know through Steve Keen’s Debunking Economics. From what I understand, Minsky’s position is that credit cycles are self-feeding, as continuing credit expansion is needed to maximize profit. Greater credit expansion implies falling lending standards, in turn increasing the risk of banks’ loan portfolio. From a macro perspective, the greater the credit expansion, the greater the risk of a financial shock. The banking system cannot self-regulate, because there’s no incentive to do so, and therefore the government needs to regulate the industry in a way to achieve an optimal amount of risk.

I don’t find the theory, at least framed in that way, very convincing. First, it’s not clear why growing risk (e.g. a growing probability of loss) doesn’t act as an incentive to restrict a loan portfolio. Second, empirically, there is little evidence that banks disregarded risk. What there is evidence of is that risk was mis-appreciated. Banks heavily invested into assets that were considered to be some of the safest. They required low capital reserve requirements, and their liquidity made them useful as information insensitive collateral for wholesale credit. The realization of just how risky these assets were came ex post.

I think Austrian business cycle theory provides a better explanation of this phenomenon. The key question is why economic agents consistently underestimated the risk associated with certain assets. That is, why were risk signals distorted (why did they provide information different from that which we would associate with a “healthy economy”)?

What drove the MBS market was the increasing housing price index. Austrian theory can explain this feedback mechanism between credit expansion, rising prices, and increasing asset values, which in turn created room for further credit expansion. The emphasis on rising prices is synonymous with Hayek’s concept of “false profits,” which arise out of changes in relative prices. I think you can get the same narrative without knowing Austrian business cycle theory, but the evidence does fit the “typical” features of the theory rather well.

This being said, I don’t think Rothbard’s views on banking are very helpful with understanding financial crises and dramatic fluctuations in output. Rothbard believed that all credit expansion is harmful. There is an optimal volume of fiduciary media which is greater than zero. The real question is why certain banking frameworks don’t restrain the volume of credit expansion. Clearly, though, Minsky doesn’t really provide a better theory than Rothbard’s. He thought unstable credit expansions were inherent in the capitalist economy. That was a view that was widely held during the inter-war period (for example, Hayek said as much in his early business cycle work), but in retrospect is not obviously correct. George Selgin’s theory of banking provides a better answer: important disciplining mechanisms (the inter-bank clearing mechanism) are eliminated when currency is monopolized.

In short, there are a lot of parallels between Minsky and Austrians. But, I don’t think these parallels make Minsky any more useful. Austrian theory is far more comprehensive; I think it offers a much more complete model by which we can explain the business cycle. This being said, I don’t think Austrian business cycle theory is the end all, be all. There is a rich, non-Austrian literature on the financial dynamics that led to the crisis. Selgin’s banking theory is not specifically Austrian, and there have been other non-Austrian contributions to the theory of free banking and market-based regulation. But, I think all of this is complimentary, and when fit together gives a pretty good explanation. I guess my point is that Minsky’s theory just doesn’t seem necessary — what it does explain, other theories explain better. Of course, only an Austrian would say something like that.

26 thoughts on “Minsky v. Mises–Hayek

  1. valueprax

    I am confused by this:

    “Rothbard believed that all credit expansion is harmful. There is an optimal volume of fiduciary media which is greater than zero.”

    What are you trying to say here? Is “credit” a synonym for “fiduciary media”? Must it always be synonymous?

    How do you know, a priori, that “there is an optimal volume of fiduciary media which is greater than zero?”

    With regards to Minsky, doesn’t his theory seem to represent a “mysterious answer to a mysterious question”? ( http://lesswrong.com/lw/iu/mysterious_answers_to_mysterious_questions/ )

    He essentially says, “Why do we see booms and busts in capitalist economies? Oh, well, they’re inherently unstable.”

    Question begging– WHY are they inherently unstable? Where do the sources of instability spring from?

    Reply
    1. JCatalan

      Maybe it depends on how “credit” is defined. If “credit” refers to all debt, then not all credit is fiduciary media. But, what I mean is that there is an optimal amount of money that is unbacked. I don’t know a priori that the optimal amount of fiduciary media is greater than zero, but practically speaking we know there is. Savings can be held in relatively liquid or relatively illiquid form, where one extreme of the former is cash. If savings are held in the form of cash, without a process of fiduciary media creation these savings can’t be intermediated, and we forgo whatever productivity these savings would have allowed us.

      From what I know from reading Keen’s book, the mechanism of instability in the capitalist economy is the banking system. I don’t know if Minsky would agree with everything Keen says, but Keen believes that, in order to grow, capitalist economies need a growing amount of debt. As the amount of credit grows, lending standards fall, and this is what produces the instability. The whole framework is wrong.

      Reply
      1. valueprax

        Of course it depends on how credit is defined. This is why I was asking how YOU were defining it. It is hard to understand what you’re trying to say in the two sentences I quoted, without understanding how you define those terms, because I can’t tell if you’re using them as synonyms or not. Can you clear that up please? How are YOU defining it as you use it above?

        I am confused about the following:

        1.) You don’t know a priori that the optimal amount of fiduciary media is > 0, but you do know practically that it is. What is the difference, and how did you arrive at this practical conclusion seeing as how it must rest on some kind of different logic than a priori thinking?
        2.) Why MUST there be a process of intermediation of savings? Why couldn’t it be the case that some amount of savings is not intended to be intermediated?

        I’ve never read Keen, or at least not his book (I think I’ve read some blog posts here and there when others have linked to him). Is he an “empirical economist”? Is he basing his framework off observing that there is debt in “real” capitalist economies, and thus he arrives at the conclusion that debt (which I assume what is being implied here by “debt” is fiduciary media debt, not “debt-backed-by-real-savings” aka 100% reserves) is necessary to growth?

        I am curious as to what “falling lending standards” could mean, significantly, in this world? What is the critical difference between a high quality borrower, and a low quality borrower?

        Reply
        1. JCatalan

          Definitions: For my purposes, credit and fiduciary media are the same.

          About your confusion:

          1. If there is an increase in demand for money, then fiduciary expansion is warranted. How much is an empirical question;

          2. Higher savings implies higher productivity. There is an opportunity cost to unused savings.

          About borrowers: Low quality borrowers have a higher risk of default, as explained in the post.

          About Keen: Theory is mostly a priori no matter the school. Then Keen seeks to apply his theory to reality, which is an empirical task. His views on debt and growth are based, if I remember correctly, on the work of Marx and Schumpeter.

          Reply
          1. Scott Gaff

            i’m not sure about Marx, but i recall Keen stating on a blog (dead as far as i recall) that he was 80% (80/85) influenced by Schumpeter, so i guess you could call him a Schumpeterian.

          2. valueprax

            JCat,

            So when you say credit and fiduciary media are the same, what term do you use for “credit” or a loan made against actual savings?

            With regards to #1, I am not sure I follow. I am not certain that “demand for money” is equivalent to “demand for fiduciary media”. I think they’re distinct goods. I don’t think you can “add the demand” of the two and treat them as one. But even if you could, I am still confused. You say this is an empirical question. What empirical data are you relying on here to substantiate your claim that the optimal amount of fiduciary media is > 0?

            With regards to #2, I am not sure how that answered my question at all. I asked you why savings MUST be intermediated. Why couldn’t it be perfectly okay that some people don’t intend to intermediate their savings and have it invested into loans, but rather they prefer to just hold cash to increase their future optionality? You state a tautology of sorts and then make a generalized statement about opportunity cost and savings which is true of all economic decisions. I don’t see how that is a response to my specific question which is “Why couldn’t it be the case that some amount of savings are not intended to be intermediated by the owners?” Maybe they’re willing to forgo the return to have the optionality. I don’t follow your logic here.

            My question about what constitutes a “low quality borrower” again resulted in a tautology. Of course a “low quality borrower” has a higher risk of default. I am asking what it is about them that makes them higher risk. Why is one person at high risk of default and another at low risk? What drives that?

            I guess I’d have to dig into Keen’s works if I was really interested to understand why he thinks “capitalist economies need debt to grow.” In my very simple way of thinking about things I can’t possibly see how that is necessary and true. I think of something like Bob Murphy’s “sushi islander” example, the acts of fishing and net making and boat making. I don’t see how “debt” (where you define it as credit/fiduciary media/liabilities not backed by real savings) are necessary to finance this growth in the economy. I was hoping I wouldn’t have to go read the back archives of Keen to be familiar with his central point but I guess I am still left confused after your explanation.

          3. JCatalan

            So when you say credit and fiduciary media are the same, what term do
            you use for “credit” or a loan made against actual savings?

            I might use credit interchangeably; the meaning of “credit,” when I use it, might depend on the context.

            I am not certain that “demand for money” is equivalent to “demand for fiduciary media”. I think they’re distinct goods.

            Sure, but if we assume that the supply of outside money is relatively inflexible, or if we’re in a fiat money standard, then an increase in the demand for money will have to be met by an increase in the supply of fiduciary media — we live in a modern society, with a modern banking system.

            What empirical data are you relying on here to substantiate your claim that the optimal amount of fiduciary media is > 0?

            Do you really need concrete data to conceptualize that some people hold their savings in relatively liquid form? This shouldn’t be a controversial point.

            I asked you why savings MUST be intermediated.

            Um, I suppose that nothing “must” be as it is. But, there’s a social benefit to the successful use of intermediated savings.

            Why couldn’t it be perfectly okay that some people don’t intend to intermediate their savings and have it invested into loans, but rather they prefer to just hold cash to increase their future optionality?

            The intermediation of real goods is always voluntary. If all economic goods are owned, then someone has to voluntarily give them up. But money is not a good of this type. Money, if you will, is a veil. An increase in the demand for money without an equal increase in the supply of money means that there’s some people who can’t meet their cash balances, and therefore can’t sell their goods. I have other posts discussing this (see “favorites” at the top of the blog). This is a complicated subject, and I don’t really intend to get into another debate on it in the comment sections.

            I am asking what it is about them that makes them higher risk. Why is one person at high risk of default and another at low risk? What drives that?

            Lower incomes? Other debts? Et cetera. If you don’t like my answers, you might find it more fruitful to think through these things yourself (and I don’t mean this as a snide response; I myself prefer to think through things myself most of the time, because the answer becomes clearer).

          4. valueprax

            I did find your answers snide, whether you intended them to be or not. I did not find your meaning to be clear, so I asked for clarification. The message I got was “I don’t really have to be clear.” I wish I had that kind of license.

  2. Blue Aurora

    Out of curiosity Jonathan Finegold Catalan, did you notice the interactions I had with Current in the comments section of Daniel P. Kuehn’s post on Minsky and Rothbard? Do you have anything to say for those comments?

    Reply
  3. Lord Keynes

    “I think Austrian business cycle theory provides a better explanation of this phenomenon.”

    Yet the classic ABCT has very little to say about the destabalising effects of asset price inflation.

    Karen I. Vaughn in Austrian Economics in America: The Migration of a Tradition (Cambridge and New York, 1994) is completely correct:

    “Mises never discusses the possibility of systematic speculative error except in the context of his trade cycle theory, in which speculators-investors are misled by improper monetary signals emanating from a fractional reserve banking. Yet if the future cannot be predicted, or as Shackle would say, if the future is created out of the actions of the past, why is it not least conceivably possible for speculative activity to be on
    net incorrect at least some of the time? Certainly, we have the empirical evidence of speculative bubbles that are endogenous to markets as an example of market instability. One would think that the extent and potential limiting factors that affect such endogenous instabilities would be of great importance for fully understanding market orders, yet it is an issue surprisingly missing in the Austrian literature.”
    (Vaughn. 1994: 87–88).

    Reply
    1. JCatalan

      I agree that early literature on Austrian business cycle theory doesn’t focus on the financial aspect of bubbles, and instead focuses on malinvestment. But, in my opinion, it’s just a problem of extension and application. I’ve certainly applied it myself, and I think quite successfully. My problem with Vaughn’s paragraph above is that we’re not just talking about speculative activity being wrong some of the time, even on net; we’re talking about a sustained, long-term financial malinvestment. Moreover, we’re not just talking about random error. What happened was a distortion of risk signals (what turned out to be high-risk debt was thought to be, by most people, very, very low-risk debt — that’s why it was information insensitive), which suggests that error was non-random.

      Reply
      1. phil

        “why were risk signals distorted”
        A few guesses:
        1. mainstream economists think that the level of private sector debt isn’t important, so they ignored it.
        2. The financial sector engaged in widespread fraud, deliberately misleading people about the nature of the so-called ‘assets’ and ‘financial products’ they were peddling.
        3. Incentive structures within the financial sector encouraged to people to try and scam as much money as possible before everything inevitably blew up.
        4. Regulators didn’t do their job properly, so no one in authority raised the alarm.

        Reply
        1. JCatalan

          ‘1’ may be true, but has nothing to do with how banks perceived the risk of their assets held. I don’t think ‘2, 3, and 4’ are supported by the evidence (if you follow the link in the post, it cites some papers that look over the empirical evidence).

          Reply
          1. phil

            This page lists many of the main causes:
            http://en.wikipedia.org/wiki/Financial_crisis_of_2007
            “The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that “the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”

          2. phil

            “there is little evidence that banks disregarded risk”.
            Actually there’s a lot. For example:
            —————————
            “Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen III on events during his tenure as the Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group for Citigroup (where he was responsible for over 220 professional underwriters) suggests that by the final years of the U.S. housing bubble (2006–2007), the collapse of mortgage underwriting standards was endemic. His testimony stated that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were “defective” (were not underwritten to policy, or did not contain all policy-required documents) – this, despite the fact that each of these 1,600 originators was contractually responsible (certified via representations and warrantees) that its mortgage originations met Citi’s standards. Moreover, during 2007, “defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi’s standards) increased… to over 80% of production.”[80]
            ———————
            In separate testimony to the Financial Crisis Inquiry Commission, officers of Clayton Holdings—the largest residential loan due diligence and securitization surveillance company in the United States and Europe—testified that Clayton’s review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators’ underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 “too big to fail” banks) additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton’s analysis further showed that 39% of these loans (i.e. those not meeting any issuer’s minimal underwriting standards) were subsequently securitized and sold to investors.[81][82]”
            ——————–
            “Former employees from Ameriquest, which was United States’ leading wholesale lender,[85] described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits.[85] There is growing evidence that such mortgage frauds may be a cause of the crisis.[85]”
            ———————
            “Martin Wolf further wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: “…an enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the ‘shadow banking system’ itself – was to find a way round regulation.”[118]
            ———————-
            “a conflict of interest between professional investment managers and their institutional clients, combined with a global glut in investment capital, led to bad investments by asset managers in over-priced credit assets. Professional investment managers generally are compensated based on the volume of client assets under management. There is, therefore, an incentive for asset managers to expand their assets under management in order to maximize their compensation. As the glut in global investment capital caused the yields on credit assets to decline, asset managers were faced with the choice of either investing in assets where returns did not reflect true credit risk or returning funds to clients. Many asset managers chose to continue to invest client funds in over-priced (under-yielding) investments, to the detriment of their clients, in order to maintain their assets under management. This choice was supported by a “plausible deniability” of the risks associated with subprime-based credit assets because the loss experience with early “vintages” of subprime loans was so low.”[126]
            ———————-
            “There is strong evidence that the riskiest, worst performing mortgages were funded through the “shadow banking system” and that competition from the shadow banking system may have pressured more traditional institutions to lower their own underwriting standards and originate riskier loans.”[7]
            ———————
            http://en.wikipedia.org/wiki/Financial_crisis_of_2007#Weak_and_fraudulent_underwriting_practices

          3. JCatalan

            It’s a little bit more complicated than what those excerpts suggest. Most of what is claimed there isn’t in doubt, but they provide an extremely superficial analysis. I’ll provide a few responses to give you an idea of what I have in mind.

            1. Yes, the quality of debtors decreased over the length of the boom. The individual loan became riskier. But, first, it was thought that this risk could be ameliorated by pooling loans. That’s why CDOs with large quantities of low-grade loans were considered low-risk, high-quality, information insensitive debt. Second, this risk was heavily contingent on the movement of housing prices, and few people believed that there would be a collapse in housing prices (i.e. Hayek’s phantom profits);

            2. The securitization of loans did drive standards down. If originators were offloading these assets to investment banks and shadow financial firms, they didn’t really bare the risk. But, again, this was the entire point behind the pooling of risk;

            3. There probably was a lot of fraud, but we have to be careful to not confuse some part of the boom as something which characterizes it more generally, or, in other words, as something which drove it;

            4. The econometric studies I’ve read have generally agreed that there was no systematic conflict of interest, and that bank management did not have perverse incentives.

          4. phil

            “Yes, the quality of debtors decreased over the length of the boom. The individual loan became riskier. But, first, it was thought that this risk could be ameliorated by pooling loans”.
            .
            You’ve missed a point in the excerpts I provided:
            .
            “the sampled loans did not meet the minimal standards of any issuer”
            .
            Loans were made that didn’t meet any minimal standards – not even of the lenders themselves. By the time of the crisis this sort of behaviour was “endemic”.
            .
            This wasn’t just a case of banks carefully making somewhat riskier loans in the belief that pooling those loans could then reduce the risk. This was a case of banks making loans that didn’t even meet their own basic underwriting standards.
            .
            “a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits”
            .
            There was widespread fraudulent creation of garbage financial products by the largest lenders. This ‘toxic waste’ was then packaged into impenetrably complex derivatives, which were rubber stamped as ‘AAA’ by rating agencies, who were either incompetent or complicit. People managed to get away with it because regulators completely failed in their responsibilities.
            .
            “This boom in innovative financial products went hand in hand with more complexity. It multiplied the number of actors connected to a single mortgage (including mortgage brokers, specialized originators, the securitizers and their due diligence firms, managing agents and trading desks, and finally investors, insurances and providers of repo funding). With increasing distance from the underlying asset these actors relied more and more on indirect information (including FICO scores on creditworthiness, appraisals and due diligence checks by third party organizations, and most importantly the computer models of rating agencies and risk management desks). Instead of spreading risk this provided the ground for fraudulent acts, misjudgments and finally market collapse.[117]”
            .
            “As financial assets became more and more complex, and harder and harder to value, investors were reassured by the fact that both the international bond rating agencies and bank regulators, who came to rely on them, accepted as valid some complex mathematical models which theoretically showed the risks were much smaller than they actually proved to be.[124] George Soros commented that “The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.”[125]
            .
            http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308#Incorrect_pricing_of_risk

          5. phil

            “Second, this risk was heavily contingent on the movement of housing prices, and few people believed that there would be a collapse in housing prices”
            .
            Probably because their mainstream economic models told them that ever-increasing private debt and leverage wasn’t a problem.
            .
            “The financial crisis was not widely predicted by mainstream economists, who instead spoke of the Great Moderation”.
            .
            “Within mainstream financial economics, most believe that
            financial crises are simply unpredictable,[165] following Eugene Fama’s efficient-market hypothesis and the
            related random-walk hypothesis.”
            .
            http://en.wikipedia.org/wiki/Financial_crisis_of_2007#Role_of_economic_forecasting
            .
            “The econometric studies I’ve read have generally agreed that there was no systematic conflict of interest”

            .

            Which ones?

          6. JCatalan

            For the last question, again, follow the imbedded link in the post (where “little evidence” is hyperlinked — some studies are cited there).

            You’ve missed a point in the excerpts I provided…

            No, I understood the point. My response takes what you write into consideration (that loan originators were offering mortgages that didn’t mean minimum standards). But, remember, these minimum standards were standards developed before the boom, and so banks saw it profitable (where profit includes some probability of loss due to increasing risk) to make these loans.

            People managed to get away with it because regulators completely failed in their responsibilities.

            I agree that the crisis would not have been as bad had regulators been more aware (there were private rating agencies that did catch the worsening quality of the financial assets), but this doesn’t mean that the crisis wouldn’t have existed at all (if in reduced form). That is, it’s not an underlying factor behind the boom and bust.

            Probably because their mainstream economic models told them that ever-increasing private debt and leverage wasn’t a problem.

            Well, obviously their models didn’t include any plausible process by which the increase in leverage would be unstable and lead to an essentially macro- collapse in housing prices. But, this statement is almost tautological.

          7. phil

            “banks saw it profitable (where profit includes some probability of loss due to increasing risk) to make these loans”.
            .
            Because fraud, complexity, deception, corruption, ignorance, incompetence, irresponsibility, etc, made it possible to turn ‘toxic waste’ into gold.
            .
            “That is, it’s not an underlying factor behind the boom and bust”.
            .
            There are many underlying factors, but the idea that everyone was just honestly misled by the rate of interest being too low, or whatever, is just wrong.
            .
            Again, the statement that “there is little evidence that banks disregarded risk” is simply wrong. It’s about as wrong as it’s possible to be. Yes, many people simply mis-appreciated risk, but in many cases this is because risk was being systematically and knowingly mis-represented.
            .
            “But, this statement is almost tautological.
            .
            How? Many of those who honestly mis-appreciated risk based their predictions on totally wrong mainstream models. If they had used different models – i.e. models which bothered to take private debt and leverage into account, then they might have been more aware of what was coming.

          8. JCatalan

            Because fraud, complexity, deception, corruption, ignorance,
            incompetence, irresponsibility, etc, made it possible to turn ‘toxic
            waste’ into gold.

            No, because rising housing prices distorted banks’ perception of risk.

            There are many underlying factors, but the idea that everyone was just honestly misled by the rate of interest being too low, or whatever, is just wrong.

            That’s not what this post claims.

            How? Many of those who honestly mis-appreciated risk based their predictions on totally wrong mainstream models.

            If banks failed to foresee the crisis, then obviously their models didn’t allow them to foresee it. That’s why the statement is tautological. But, it really doesn’t say anything useful. Of course if they had used models that would have predicted the crisis they wouldn’t have invested as much as they did in the kind of assets they did.

          9. phil

            Saying “people didn’t predict the crisis because their models were wrong” is not tautological.
            .
            “rising housing prices distorted banks’ perception of risk”.
            .
            If, as you seem to assert, banks looked at rising house prices and concluded that what goes up can never come down, therefore all underwriting standards could be jettisoned, any degree of leverage was acceptable, and junk subprime liar’s loans could be correctly valued as AAA securities, then by definition they were disregarding risk.

          10. JCatalan

            No, it doesn’t necessarily imply that they were disregarding risk. It implies that, because of rising housing prices, risk was distorted. Banks did consider risk. The volume of leverage an individual bank can support is a factor of its capital reserves, and evidence shows that most banks actually held capital reserves above the minimum. There is very little actual evidence that suggests that banks were willingly taking on more risk than they thought they could handle. And, loan originators didn’t “jettison” all standards, they simply reduced them. Housing prices began to fall precisely because loan originators were having trouble finding new borrowers, because at some point they didn’t want to reduce standards more than they had already done.

  4. Pingback: Yes, A Thought That Would Make Neither Group Happy | The Radical Subjectivist

Leave a Reply