Alan Greenspan - "Financial crises are characterized by a progressive inability to float, first long term debt and eventually short term, and overnight, debt as well. Future uncertainty and therefore risk is always greater than near term risk, and hence risk spreads always increases with the maturity of a financial instrument. The depth of financial crisis is properly measured by the degree of collapse in the availability of short term credit.
The evaporation of the global supply of short term credits within hours or days of the Lehman failure is, I believe, without historical precedent. A run on money market mutual funds, heretofore perceived to be close to riskless, was underway within hours of the Lehman announcement of default."
Greg Mankiw - Comments on Alan Greenspan's "The Crisis" - "The issue I am wrestling with is whether this maturity transformation is a crucial feature of a successful financial system. The resulting maturity mismatch seems to be a central element of banking panics and financial crises. The open question in my mind is what value it has and whether the benefits of our current highly leveraged financial system exceed the all-too-obvious costs.
To put the point most broadly: The Modigliani-Miller theorem says leverage and capital structure are irrelevant, while undoubtedly many bankers would claim they are central to the process of financial intermediation. A compelling question on the research agenda is to figure out who is right, and why."
Alan Greenspan - "Some bubbles burst without severe economic consequences, the dotcom boom and the rapid run-up of stock prices in the spring of 1987, for example. Others burst with severe deflationary consequences. That class of bubbles, as Reinhart and Rogoff data demonstrate,20 appears to be a function of the degree of debt leverage in the financial sector, particularly when the maturity of debt is less than the maturity of the assets it funds.
I very much doubt that in September 2008, had financial assets been funded predominately by equity instead of debt, that the deflation of asset prices would have fostered a default contagion much beyond that of the dotcom boom. It is instructive in this regard that no hedge fund has defaulted on debt throughout the current crisis, despite very large losses that often forced fund liquidation."
Greg Mankiw - CBO scoring of the health bill - "Recall that the bill raises taxes substantially. Some of these tax hikes are the explicit tax increases on capital income to pay for the insurance subsidies. Some of these tax hikes are the implicit marginal rate increases from the phase-out of the insurance subsidies as a person's income rises. Both of these would be expected to reduce GDP growth.
Indeed, to be very wonkish about it, these tax changes could have especially large GDP effects. Some people like to argue that taxes have small GDP effects because income and substitution effects offset each other. But if you give someone a subsidy and then phase it out, both the income and substitution effects work in the direction of reducing work effort."
Brad DeLong - Interest Rates and the Housing Bubble - "Suppose that John Taylor is right: that prudent macroeconomic policy would have had the Federal Reserve begin to raise interest rates not in the middle of 2004 but in the middle of 2003, and raise them back to boom-time levels not in two years but in one year, like so:
What would have been the direct effect of such an alternative short-term interest rate path on housing prices?"
"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008