Thursday, April 16, 2009

Judge Posner is sounding like a lefty

I used to have a semi-operative "posner" tag but I have been off the Judge Richard Posner beat for a minute now. But I think I might want to read his new book about the financial crisis. And in this new NYT Q&A, check out how he blames Alan Greenspan for the financial crisis:
The riskiness of banking can be reduced by regulation. But as a result of a deregulation movement that began in the 1970’s, the industry was largely deregulated by 2000. Then the Federal Reserve mistakenly pushed down and kept down interest rates, which led to a housing bubble (because houses are bought with debt) and in turn to risky mortgage lending (because mortgages are long term and there is a nontrivial risk of default); and when the bubble burst, it carried the banking industry down with it. [...]

The banking collapse occurred last September. The government’s unpreparedness (for which Greenspan and Bernanke, successive chairmen of the Federal Reserve, and academic economists bear a large part of the responsibility because of their failure to spot the housing and credit bubbles and their mistaken belief that a depression, as distinct from a mild recession, could never again happen in the United States) and its resulting spasmodic, improvisational responses allowed the crisis to deepen, precipitating the depression we’re now in.
Yeah, so, also, Judge Posner evidently does not mind coming out and saying that we're in a depression.

I don't know that my headline to this item is totally fair -- Posner is still pretty measured about imposition of new regulations, and besides that I'm not sure he's ever been rigidly libertarian (remember his pro-trans-fats-ban post!). But I am not the first person to find remarkable the extent to which Posner, a founding member of the Chicago School, blames lax regulation for the catastrophe. From the same Q&A:
That is the logic of profit maximization, as explained long ago by Adam Smith: the businessman cares about his costs and his revenues, but not about the costs and revenues incurred or received elsewhere in the economy. He is not an altruist. The responsibility for preventing the collapse of the banking system is the government’s, and it has been shirked, with extremely serious consequences.
All in all some interesting thinking here and reason to want to follow his apparently-forthcoming financial-crisis blog on The Atlantic's site.

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