Low Interest Rates Get Sharp Look as Cause of Great Recession
NEW YORK (TheStreet) -- A theory out of academia is putting more blame on low interest rates for greasing the skids to the near-collapse of the U.S. banking system in 2008 and the worst economic slide since the Great Depression.
And it could happen again if banks and financial regulators aren't careful.
The theory is being pushed by Robert S. Marquez, a business professor at the University of California, Davis.
Banks and economists weren't aware of the interest rate fiasco as it was unrolling, Marquez says, and never saw the disaster that would decimate the economy."It wasn't until after the crisis that people, including policymakers as well as academic economists, started realizing that the level of interest rates may induce particular bank behavior," said Marquez, at the UC Davis Graduate School of Management. "Prior to the crisis, few expected that low interest rates for extended periods were problematic and could have led to bank failures as there was very little, if any, guidance on this issue." here. It's a good read, and a much-needed flashing yellow light on the perils of easy money in a low rate environment.
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