Part of the crisis driver was a lack of incentive to invest money carefully because of guarantees: foreign capital (e.g., China buying hundreds of billions in Fannie Mae bonds) and domestic investors funded GSE debt without worrying about loan quality, confident the Treasury would stand behind it—so it was not just an increase in debt but an increase in debt and leverage for unproductive assets that moral hazard amplified.

causalpending

Speaker

Russ Roberts

Evidence Quote

it's an increase in in debt and leverage for particularly unproductive assets which is part of the story and that part is where the moral hazard really really amplifies

Source

Carmen Reinhart on Financial Crises 11/23/2009EconTalk
Created: 6/15/2026, 9:20:19 AM

My Notes

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