That’s one of the key points in Krugman’s NYTimes column today:
“Capital was channeled not to job-creating innovators, but into an unsustainable housing bubble; risk was concentrated, not spread; and when the housing bubble burst, the supposedly stable financial system imploded, with the worst global slump since the Great Depression as collateral damage.
So why were bankers raking it in? My take, reflecting the efforts of financial economists to make sense of the catastrophe, is that it was mainly about gambling with other people’s money. The financial industry took big, risky bets with borrowed funds — bets that paid high returns until they went bad — but was able to borrow cheaply because investors didn’t understand how fragile the industry was.”
This is the same point Michael Lewis makes in his No. 1 best-selling book, “The Big Short”:
When Goldman went public a few years ago, it transferred the risk away from its partners — to shareholders. Gambling with other people’s money..our national casino.
Post a Comment