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Brookings – Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble

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Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble – Douglas J. Elliott, Fellow, Economic Studies, Initiative on Business and Public Policy, Martin Neil Baily, Senior Fellow, Economic Studies – The Brookings Institution, November 23, 2009.

  • “Major crises, such as the recent financial crisis, usually end up being understood by the public in terms of some simple narrative, which then heavily influences the choices politicians make. We believe there are three major story lines still vying for acceptance by the public and that whichever one comes to dominate could strongly affect public policy.
    • Narrative 1: It was the fault of the government, which encouraged a massive housing bubble and mishandled the ensuing crisis.
    • Narrative 2: It was Wall Street’s fault, stemming from greed, arrogance, stupidity, and misaligned incentives, especially in compensation structures.
    • Narrative 3: “Everyone” was at fault: Wall Street, the government, and our wider society. People in all types of institutions and as individuals became blasé about risk-taking and leverage, creating a bubble across a wide range of investments and countries.”
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