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Gary Becker On The Financial Crisis

Wise words. He informs us that there will be no Great Depression 2.0, which far too many people are worrying about, of course. He also points out that some of what we have been doing to try to adjust to the crisis will only serve to make things worse:

The temporary banning of short sales is an example of a perennial approach to difficulties in financial markets and elsewhere; namely, “shoot the messenger.” Short sales did not cause the crisis, but reflect beliefs about how long the slide will continue. Trying to prevent these beliefs from being expressed suppresses useful information, and also creates serious problems for many hedge funds that use short sales to hedge other risks. Their ban can also cause greater panic in other markets.

Well put. Becker also calls for the sale of Fannie and Freddie to private sector actors as soon as possible. Let’s see how long it takes for that sale to occur.

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