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Yet More DeLong Smackdown Watch: Yves Smith Raises Objection (3) to Dealing with the Financial Crisis

Posted on April 01, 2008

Larry Summers's believes (and I agree) that we can likely resolve the financial crisis by (a) using regulatory authority to induce banks and not-banks to recapitalize (thus raising their demand for risky assets) and (b) having the government fund its own or GSE's purchase of mortgages or having the government guarantee mortgages (thus reducing the supply to the private market of risky assets): and so returning us to a good near-full-employment financial-markiet equilibrium. Yves Smith disagrees, and in an attempted refutation raises what I call Objection (3): It can't work, it won't work--at...

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bernanke , economy , federal reserve , housing , housing bubble , housing crash , interest rates , output , taxes