Thursday, July 16, 2009

Is it clear something went wrong?

The leader in the Economist this week is "What Went Wrong With Economics". The alliteration notwithstanding, is it really clear that something went wrong? I thought there were many calls for pricking the asset bubble over the prior years (including from the Economist). Also, doesn't standard economic theory predict that where incentives are not properly designed (for example, mortgage originators are seeking one-time initial fees rather than a reliable stream of income payments; bond raters are paid by the issuer rather than the purchaser; etc.) that you will have poor results?

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