"The financial system created a fog so thick that even its captains could not navigate it."
In Our Epistemological Depression, Jerry Muller argues that major recessions are characterized by something novel.
This crisis was not created by something that gets reflected in the financial system, but a crisis caused within the financial system itself.
The most important bubble of the last decade or so was not of the housing sector, but of the financial sector, a bubble reflected by the 20 percent of S & P 500 profits that were made in the financial sector.
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a large role was played by the failure of the private and corporate actors to understand what they were doing. Most heads of ailing or deceased financial institutions did not comprehend the degree of risk and exposure entailed by the dealings of their underlings—and many investors, including municipalities and pension funds, bought financial instruments without understanding the risks involved.
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Diversification and complexity, which are both supposed to reduce risk, turned out to have unintended and unanticipated negative consequences. The purported virtues mutated into vices.
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Without financial institutions that people have faith in, a fiscal stimulus is unlikely to have much of a multiplier effect.