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Right now, it’s hard to escape being inundated with new headlines about the financial crisis. But amid the din of ever-changing news soundbites, it’s not easy to make sense of the bigger picture. Here are two thoughtful perspectives that can help you do just that :
- An article in today’s New York Times explores how a little-noticed 2004 SEC decision allowing the largest investment banking firms to take on more debt paved the way for the current crisis in the U.S. financial markets. “We foolishly believed that the firms had a strong culture of self-preservation and would have the discipline not to be excessively borrowing,” Professor James D. Cox of the Duke School of Law told the The New York Times. One of the investment banks that sought the deregulation in 2004? Goldman Sachs, then headed by Henry M. Paulson, Jr. — now U.S. Treasury secretary.
- But it’s a mistake to think the current financial crisis is just a result of overleverage or trouble in the housing market, according to economists Simon Johnson and Peter Boone. On their new website, The Baseline Scenario, Johnson, a professor at the MIT Sloan School of Management and Boone, an Associate at the Centre for Economic Performance at the London School of Economics, argue that the real issue is a crisis of confidence among creditors — analogous to the one that roiled emerging markets such as Thailand and Brazil in 1997 and 1998. The Baseline Scenario offers