Tuesday, June 30, 2009
Friday, June 26, 2009
Monday, June 22, 2009
This story is from Arnold Kling at EconLog. So simple that even a child could understand but so complex that most politicians probably won't.
Once upon a time, there was a summer camp. To entertain the kids, the counselors handed out matches1, lighter fluid2, and newspapers3. The camp burned down.
Afterwards, a white paper was written, proposing more supervision by counselors. It called for a systemic counselor to watch out for camp-wide fire hazards, and it called for procedures to put out fires that are "too big to let burn."
The white paper was written under the direction of two counselors, Larry and Tim, with input from another counselor, Ben.
1housing policy that encourages speculative purchases and subsidizes mortgage indebtedness
2tax policy that encourages banks and other firms to maximize debt relative to equity
3bank capital regulations that reward securitization and the creation of off-balance sheet entities