In a new book entitled Observations on the Financial Crisis, Stanford professor Keith Hennessey and Stanford professor and Hoover senior fellow Edward P. Lazear draw on their experiences in the Bush administration, as well as discussions with colleagues and students, to present their thoughts and correct misperceptions about the financial crisis. The nineteen observations span the full trajectory of the financial crisis, from the various causes to Presidents Bush and Obama’s responses to the effects of the government’s actions. Listen to the podcast.
Lazear discusses Observations on the Financial Crisis on the Santelli Exchange on CNBC.
Three points deserve highlighting:
- Hennessey and Lazear argue that the “deregulatory hypothesis” is flawed for three reasons: the most problematic sectors of the economy in 2008 were also the most regulated, and therefore increasing regulations would not address the fundamental causes of the recession; the recession also saw the failure of financial institutions across the globe, and therefore any explanation that focuses solely on the United States is at best incomplete; and the chronology of deregulation does not match the chronology of the financial crisis.
- It is a misconception that President Obama’s administration addressed the financial crisis. Instead, it is more accurate to say that President Bush’s administration handled the financial crisis as part of all the major financial rescue policies that were enacted in the last few months of the Bush administration. The Obama administration largely continued these rescue policies, focusing on financial cleanup, financial policy reforms, and the severe macroeconomic recession.
- The positive effects of the fiscal stimulus have been overestimated and the extent of the recession has been exaggerated. Thus, although Hennessey and Lazear concede that determining precise counterfactuals is difficult, the fiscal stimulus was not large enough to have saved the United States from another Great Depression, though it probably staved off a worse recession.
Read these and Hennessey and Lazear’s other observations below, or download the pdf.