Tuesday, November 10, 2009

Quote Pull: Endless Summers

A great paragraph from a piece called Endless Summers (on Larry Summers) for the December issue of Vanity Fair

"People plant a little wheat. People demand to eat a little more bread, and the thing self-stabilizes. But it was [economist John Maynard] Keynes’s central insight that it’s not always that way. And it’s not always that way in particular because leverage [i.e., borrowing] can create situations where, when prices fall, then people have to sell, and so they fall faster. When asset prices fall, capital values fall, and, therefore, people are in less of a position to lend, and, therefore, other people are forced to sell. And there’s a whole set of these vicious cycles. You can also have a change in gestalt where people who had perceived things as safe all of a sudden move things from the concept of being safe to the concept of being risky, and if they’re risky, they don’t want to hold them. And so you see a large scale of abandonment. And I think in one way or another the leverage, the vicious cycle, the change in gestalt, the unwinding—that’s the financial crisis.”

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