September 29th, 2008 at 5:23 pm
Top Economists Examine the Crises in the Financial and Real Estate Markets
Some economists saw the dangers of the housing bubble before the recent collapse. In his piece from The Economists’ Voice: Top Economists Take on Today’s Problems, published earlier this year, Dean Baker, co-director of the Center for Economic and Policy Research, wrote
Another consequence of the collapse of the housing bubble will be the financial fallout from an unprecedented wave of defaults…. This will put lenders that hold large amounts of mortgage debt at risk, and possibly jeopardize the solvency of Fannie Mae and Freddie Mac, because they guarantee much of this debt. If these mortgage giants faced collapse, a government bailout (similar to the S&L bailout) involving hundreds of billions of dollars, would be virtually inevitable
Baker argues that the Fed needs to become much more involved in understanding and regulating financial bubbles in the future if it wants to avoid financial meltdowns such as the one we are witnessing today.
Baker’s is just one of three prescient essays from The Economists’ Voice examining the roots of the housing crisis. The book also features leading economists examining a range of economic, social, and political issues from the future of social security and the federal debt to global warming and the death penalty.
Other essays include Robert J. Shiller’s “Long-Term Perspectives on the Current Boom in Home Prices,” in which he argues for new risk management tools for real estate and Edward L. Glaeser and Dwight M. Jaffee’s “What to Do About Fannie and Freddie.”
We also have excerpted Joseph Stiglitz’s “The High Cost of the Iraq War.”
Contributors The Economists’ Voice include Kenneth Arrow, J. Bradford DeLong, Paul Krugman, Martin Feldstein, Robert H. Frank, Rebecca Blank, Richard Posner, Gary S. Becker, and others