Funny quotation of the day

I hope you enjoy this quotation:

Q: Are you smarter than Larry Summers?

Paul Krugman: No — Larry is incredibly smart. Ask him, he’ll tell you.

In the same Q&A, Krugman said “Keynes is utterly relevant to the modern world” and recommended Keynes' 1930 article “The Great Slump of 1930”. Just read it, and the parallels to today are scary, esp. when you realize 1930 was only the beginning of economic pain.

Krugman also debunked two free-marketeers' would-be fall guys:

Q: Do you agree that the Community Reinvestment Act (CRA) is the cornerstone of subprime lending, the root cause of financial meltdown?

Paul Krugman: No, and I’m glad someone brought that up. CRA has been in existence since 1977; plus, it only applies to depository institutions (regular banks). Meanwhile, we had a subprime bubble that mostly took place after 2002, with most of the loans made by institutions that weren’t subject to the CRA.

That’s why everyone who’s looked at this honestly says that the Community Reinvestment Act had nothing to do with the crisis.

The attempt to blame it all on the CRA is just an attempt at blame-shifting — an attempt to make liberals and nonwhite people the villains of a story that is actually about runaway financial institutions and the free-market ideologues who refused to regulate them…

Q: While you are debunking conservative myths (CRA), how about the one that the whole housing crisis was due to corruption at Fannie and Freddie?

Paul Krugman: OK, glad someone asked that. The thing is that there was corruption at Fannie and Freddie, which makes them hard to defend. But the crucial point is that because Fannie and Freddie were under scrutiny over accounting scandals, their share of mortgages outstanding was falling during the height of the housing bubble. This in turn means that private lenders were responsible for the bulk of the bad lending. You have to go through huge intellectual contortions to blame institutions for bad loans they didn’t make and didn’t securitize. But of course if you believe as a matter of faith that government is the root of all evil…

Posted by James on Monday, March 02, 2009