World-News

The New Republic
by Peter Boone and Simon Johnson

09/05/09

[T]he Fed may well have mitigated our current crisis by sowing the seeds for the next one. All modern economies need a financial system that can connect people who want to save with those who have good investment projects. This is essentially what banks do. But, unfortunately, this process often goes wrong. And that is precisely what is happening now. Our banks have gotten into the habit of needing to be rescued through repeated bailouts. During this crisis, Bernanke — while saving the financial system in the short term — has done nothing to break this long-term pattern; worse, he exacerbated it. As a result, unless real reform happens soon, we face the prospect of another bubble-bust-bailout cycle that will be even more dangerous than the one we’ve just been through. If you’ve studied U.S. economic history, none of this will come as a surprise...

http://www.tnr.com/article/economy/the-next-financial-crisis


Informant: Thomas L. Knapp

 

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