>"I've only done graduate level courses in economics and finance. If they know what they are doing why do we still have financial crises?"
Then you're ahead of me education-wise; we lend money until the default rate gets above a threshold, which causes a "crisis" of deleveraging. Then we lever up again. All of this happens around a long-term, upward growth trend. It's the business cycle. It's hard to time, but most people understand how it works.
How can you prevent crises when their foundations can come from anywhere, including natural disasters? It's impossible. But the powers-that-be do their best to soften the blow. And they have been very successful in this last recession. I know it's hard to convince people that it could have been worse, but it could have been worse.
Already they're working on the next problem: how do we not become Japan? Unlike some of the hard-sciences, economists get one kick at the can. If they miss, they have a new problem to solve.
Why not counter cycle the lending activity instead of exacerbating the business cycle?
Oh wait we're economists - free markets are sacrosanct and they are efficient - if there is an arbitrage opportunity to short surely the rational investors will price it correctly. Not.
>"Why not counter cycle the lending activity instead of exacerbating the business cycle?"
That's easier said than done. Most of it is politics. But they do.
The Fed began tightening monetary policy back in 2004, when rates went from just below 2% to 5.5%. They did so to start to "cool" the economy, and it essentially popped the housing bubble.
Then you're ahead of me education-wise; we lend money until the default rate gets above a threshold, which causes a "crisis" of deleveraging. Then we lever up again. All of this happens around a long-term, upward growth trend. It's the business cycle. It's hard to time, but most people understand how it works.
How can you prevent crises when their foundations can come from anywhere, including natural disasters? It's impossible. But the powers-that-be do their best to soften the blow. And they have been very successful in this last recession. I know it's hard to convince people that it could have been worse, but it could have been worse.
Already they're working on the next problem: how do we not become Japan? Unlike some of the hard-sciences, economists get one kick at the can. If they miss, they have a new problem to solve.