It's a relief to read that the financial crisis was fixed so long ago that it was completed before Obama was sworn in. That's the view of two of Bush's economic advisers. They make a good case: the financial crisis was over, but Obama was left with (one helluva terrible) recession. Some of their conclusions run counter to the conventional wisdom or usual conservative drivel:
- Putting Fannie Mae and Freddie Mac into conservatorship likely averted larger shocks.
- The financial crisis was caused principally by unprecedented capital flows into the United States.
- Some conservatives mistakenly assumed that Chapter 11 restructuring was a viable option for GM and Chrysler. [Ahem, Mitt]
- The “deregulatory cause” hypothesis is flawed.
"The flow into risky assets drove down credit spreads, making high-risk investment cheaper than it had been in the past. As a result, in the mid-2000s risk-taking increased dramatically, especially in the housing market."
My translation (possibly erroneous): Investors who wanted to avoid the panics that occurred in Asia and South America during the 90's decided to invest way too much in the US and Europe. It was too much money chasing after too few good investments, so money sloshed into poor investments like subprime mortgage lending and housing booms.
The more I think about, the more I wonder if that explanation works. Would it have been significantly different if the money had crashed elsewhere in the world? If so, why?