Sunday, 21 August 2011

After Many Words, a Short Conclusion on Information-Insensitive Debt

Why six lengthy blog posts on information-insensitive debt? (By the way, they were published all at once because Blogger has been acting screwy lately, barring me from my account for more than a month. In case you want to refer back to them: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6.)

I strongly believe that the shadow banking system was never confronted and dealt with properly after the financial crisis, and that this was a tragic error.

I suspect that the shadow banks will be back, with fresh problems, in the not-too-distant future.

At that time, we may finally be forced to figure out what to do with them. I expect various approaches to be proposed.

To decide wisely how to deal with the shadow banking system, I think we have to possess the right theoretical framework for understanding it. In my opinion, policy based on a flawed theory of “information-insensitive debt" will lead us to create an even more dangerous financial system.