Economists Find Bailout Approach to Financial Crisis is Inefficient Action

February 7th, 2011
in econ_news

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Econintersect:  Two economists at the IMF (Internatiuonal Monetary Fund), Michael Kumhof and Romain Ranciere, have studied the two major financial crises of the past century.  They find that the bailout of banks is an inefficient pathway to resolving such events.

Follow up:

Kumhof and Ranciere have constructed models that show the most efficient resolution involves increasing working class incomes to enable overextended debtors the opportunity to earn their way out of overleverage.  They argue that the current policy of supporting the lenders leads to much slower resolution and higher tax burdens in the future.

Source:  GEI Analysis

  

Tags: financial crises, income inequality, kumhof, leverage, ranciere, subsistence level of consumption, wage bargaining, wealth in utility, wealth inequality



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