Wednesday, October 29, 2008

Possible Solutions to US Financial Crisis

Recent Economist article argues that “Given the extent of negative equity and the risk of a negative spiral of defaults and falling prices, efforts to keep homeowners in their homes may yet be necessary to solve the crisis. Mr Zingales’s proposal looks neatest. It would cost less, leaving resources free for a more general fiscal stimulus. But it won’t be entirely costless: any forced renegotiation, even a relatively cheap one, may well lead to a higher cost of credit in the future”.

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