Lessons of the Financial Crisis

In Lessons of the Financial Crisis, Benn Steil argues that we are seeing a classic bust of a credit boom created by policies whose combined effects increased the demand for debt to unsustainable levels. U.S. monetary policy, taxation policy, and homeownership promotion policy were so conducive to credit expansion that to lay the blame on regulators who were "asleep at the switch" is dangerously simplistic. The United States in particular, given that it effectively sets monetary and credit conditions for a significant portion of the global economy, needs to put in place policies that can better recognize and curtail an incipient credit boom, and ensure that systemically important financial institutions can withstand its unwinding.