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The Cause of the Sub-Prime Meltdown

June 5, 2008

Mickey Kaus credulously reprints part of an email that blames this on the political clout of the financial industry. It is certainly plausible that lobbying helped keep the regulatory dogs at bay. The problem with the lax regulation narrative is that there is no plausible counter-narrative of how we would have been much better off if only there had been regulations X, Y and Z.

The reason for this is pretty simple: it is impossible to regulate against bubbles.

If you don’t believe me (and why should you?), Larry Summers has an excellent discussion of this here.

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