The Financial Crisis and the Limits of Government Intervention

William F. Ford28. Economic Conference

The Financial Crisis and the Limits of Government Intervention

THE AMERICAN ROOTS OF TODAY’S GLOBAL FINANCIAL CRISIS

by

William Freithaler Ford, Ph.D.

presented to

THE PROGRESS FOUNDATION

in

Zurich, Switzerland

on

May 12,2009

I. Introduction

Thank you, Dr. Studer, for your very kind introduction and for the Progress Foundation’s invitation to share some thoughts with you about the causes, consequences and global efforts to contain the ongoing international financial crisis. As suggested by the title of my talk, I believe that the root causes of the global crisis, unfortunately, are buried in the history of the U.S. housing and mortgage markets.

Nowadays, almost all informed participants in the global financial markets have heard and read about the trillions of dollars worth of so-called “toxic assets”, emanating from Wall Street and distributed through other financial centers, which have contaminated the balance sheets of financial institutions throughout the world, including here in Switzerland. It is also generally understood that the most toxic ingredients in those asset packages are the so-called “subprime” and “Alt-A” mortgages (a.k.a. “liar loans”), created, packaged and distributed mainly by U.S. financial institutions. It may be useful, therefore, to begin our search for root causes of the global financial crisis with a brief review of the historical evolution of the U.S. housing and mortgage markets that gave rise to the flood of toxic assets which now contaminate the world’s financial markets.

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