What Caused The Global Financial Crisis according to Jay W. Richards

The Global Financial Crisis according to Jay W. Richards

Jay W. Richards is the author of Infiltrated: How to Stop the Insiders and Activists Who Are Exploiting the Financial Crisis to Control Our Lives and Our Fortunes, which was released on 8/6/2013 and quickly became a NYTimes bestseller. He previously coauthored Indivisible (also a NYTimes bestseller). Dr. Richards has a PhD from Princeton Theological Seminary and he is a Visiting Scholar at the Institute for Faith, Work & Economics, as well as a Senior Fellow at the Discovery Institute.

1. Which FCIC View best represents the causes of the Financial Crisis?
Wallison Dissent

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?
It was the fault of the government.

3. I believe the Global Financial Crisis is ongoing and I project it will end in the year
2013 or beyond.

4. What were the primary causes of the Global Financial Crisis?
The primary causes of the financial crisis, as opposed to contributing factors, mere necessary conditions, and amplifiers (such as certain mortgage-backed securities fed into global securities markets), was the convergence of incentives created by a variety of federal affordable housing goals, with Fed policy and an implicit "Too Big to Fail" assumption in some large institutions playing key supporting roles. These created massive demand for risky loans, scrambled normal market signals, and the various actors with the relevant markets responded, mostly rationally, to those incentives. The capricious bailout policies of the US Treasury in 2008 vastly contributed to the market panic of September 2008. In explaining the actions of some investment banks and rating agencies, an additional assumption played a key role: namely, that the housing market in the U.S. would not drop nationwide at the same time.

5. What still should change as a result of the crisis?
The federal government should slowly unwind itself from the mortgage and housing market, keeping manipulation of that market to a minimum, while strongly enforcing contract law. It should also institute legal restrictions on government, the Fed, and federal regulators, to prohibit a perpetuation of capricious too-big-to-fail actions, such as bailouts of private institutions and private deals negotiated by government actors.

See also Richard's article The Financial Crisis Explained: Why Complexity Wasn’t the Problem (8/14/2013)

Compiled by Gary Karz, CFA
Host of InvestorHome

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