Financial crises

David Altig (Macroblog, September 2008) - The problem with financial institution balance sheets is that on the left hand side nothing is right and on the right hand side nothing is left.

Warren Buffett (in 2001 Chairman's Letter) - After all, you only find out who is swimming naked when the tide goes out.

Wilhelm Buiter (2009) - The US consumer has by now been cured of the previously well-entrenched belief that saving is for sissies because real men count on capital gains on homes and equity to see them through the night.

Ricardo Caballero - I still recall politicians and economists calling for the need to teach lessons (in a punitive sense) to the financial system in the middle of the crisis. In fact, I think Lehman happened to a large extent due to the political pressures stemming from this view. What timing! The systemic problem of moral hazard is that people take too much risk relative to what is socially optimal. But during a crisis—especially one that is triggered by uncertainty and panic—the problem is exactly the opposite: People are taking too little risk. That’s what flight to quality is all about. The most effective policies at that point are those that induce people to reload on risk.

Rudiger Dornbusch - A financial crisis usually happens much later than anybody expected, but when it starts everything goes much faster than anybody could have imagined.

Justin Fox - The wolf usually shows up right around the time that those who have been crying wolf for years have been utterly discredited. Have we reached that point yet?

Timothy Geithner (in The New York Times, November 5, 2011) - The central paradox of financial crises is that what feels just and fair is the opposite of what’s required for a just and fair outcome.

Chuck Prince (Citigroup CEO, July 2007) - As long as the music is playing, you’ve got to get up and dance. We’re still dancing.

Kevin Warsh (Federal Reserve Board Governor, 2009) - Once you've seen one financial market crisis...you've seen one financial market crisis.