The sub-prime crisis is actually an eye-opener for not just the way it has frozen economies but also on the policies. The questions are being asked on monetary policy, fiscal policy etc.
The developed world has always chided the developing for their lax policies and this sub-prime crisis actually points to their lax policies. In the name of financial innovation, unpronounceable, nonviable mortgages were sold (mainly to get higher bonuses) and it all came to an end (still more bonuses are being given than last year).
I just want to point out to another double standard , that of capital infusion by sovereign wealth funds (Middle east, Chinese, Singapore etc). I don’t know why isn’t anyone actually criticising their policies. Most articles actually point to the growing power of SWFs. Well, we don’t have a choice do we?
Not long back (read in good times) they criticised the SWFs, Chinese (their financial sector is not developed, currency is overvalued etc). When times are bad they have opened up to the Chinese and the other middle east money blatantly.
What is bad is bad, you can’t change your stance because you are in trouble. If all this capital infusion was happening behind curtains it was fine, but all is known to the public.
Why can’t they refuse and instead take losses on their books? Where is the corporate governance? Why the double standards?
Update : Rodrik points to this interesting related article