Cat’s cradle economics

George Akerlof’s account of the current economic crisis. What is the upshot of his comment? First the reason for the mess is collateral: the credit to GDP ratio got out of hand, borrowing required less and less collateral, junk did not affect ratings. What next? We didn’t see it coming but we knew exactly what to do when the proverbial shit hit the fan. The difference of this recession with 1930? The TARP!

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