Open Yale CoursesECON 252: Financial MarketsLecture 26 - Okun Lecture: Learning from and Responding to Financial Crisis,Part II (Guest Lecture by Lawrence Summers)<< previous session | next session >>Overview:In the second of his two lectures in honor of Arthur Okun, Professor Summers points out that real interest rateshave been very low in the current subprime crisis. This indicates that the shock to the economy was more afinancial breakdown shock than a disinflation shock. But financial breakdown shocks are not necessarily veryharmful to the economy, so long as financial intermediation capital is not destroyed. In a financial crisis like thepresent one, financial firms are likely to take the step of decreasing their leverage, often by contracting loans,which creates its own risks for the economy. Regulators should place pressure on financial institutions to raise their
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