Quotes of the day

Fannie's and Freddie's troubles are textbook examples of what happens when gain is privatized while risks and losses are socialized: private decision makers are led by an invisible hand to screw things up. The same underlying dysfunctionality that created America's housing-market troubles is needlessly driving up health-care costs: Medicare and Medicaid privatize the benefits of health care (medical attention for patients and handsome fees for physicians) while socializing the costs. Spending other people's money leads patients and doctors to overuse, and to use inefficiently, health-care resources - and, thus, to unnecessarily drive up health-care costs--Don Boudreaux

With the division of labor in financial markets, risk premiums are related to one another. If A lends money to B to lend money to C to lend money to D, what happens when A starts to worry that B, C, or D might be riskier than previously thought? Well, A starts to demand a higher interest rate from B, which means that B demands a higher interest rate from C, which means that C demands a higher interest rate from D, and D may already be on the skids, so everything just comes crashing down.--Arnold Kling