In case you didn’t see it, here’s something to read while awaiting (forgive me) more comments on how to define libertarianism: the New York Times
’ attempt to write a front-page political epitaph for both Phil Gramm and deregulation
. (But wait, you may ask, does Todd mean forgive him for the wait or for the comments themselves? I leave that open to diverse interpretations.)
Gramm is basically right about credit-default swaps.
They did their job. They distributed the risk throughout the financial market. That’s why we are getting the problem cascading from one place to another. But people tend to focus only on that, when the problem is really more that the housing bubble itself was so huge that even with the risks distributed, it’s enough to cascade several times over.
I suppose you could argue that without credit default swaps the problem would have stopped at the mortgage lenders and not bled over into other parts of the market.
Of course, if we tie the market up there may be few and smaller bubbles, but there will also be overall slower growth.
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