Debt, money and Mephistopheles: how do we get out of this mess?

 

In his capacity as FSA Chairman and visiting professor, Adair Turner has given his annual address to the Cass Business School.

This event provided the opportunity to speak about financial crisis and the harm caused by pre-crisis financial folly and post-crisis deleveraging.  Having touched upon the intellectual failure within mainstream economics to foresee the length of the subsequent recession.  He went on to outline the three main conclusions he had come to about this issue:

  • Firstly, that leverage and the credit cycle are important. The level of leverage in the real economy and financial system are crucial variables which were dangerously ignored pre-crisis.
  • Secondly, that arguments for free markets do not apply to banks as they do to other sectors. They need to be tightly regulated.
  • Thirdly, that financial crises resulting from excess leverage are followed by long periods of deleveraging which depress nominal demand.

Read the full speech on the FSA website.
 

 

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