“A major cause of the crisis was that Wall Street financial engineers devised a series of new instruments that neither they nor the people who traded them fully understood.” So sayeth Gary Becker, a Chicago School Economist as he concedes a point to the Keynesians.

Today on Uncommon Knowledge, Richard Epstein, the director of the John M. Olin Program in Law and Economics at the University of Chicago, and John Taylor, professor of economics at Stanford and author of Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis on the disastrous monetary and fiscal policies that deserve a share of the blame.

John Taylor: Where was the government, going into this? I mentioned Fannie and Freddie as encouraging the origination of such [toxic] mortgages in the first place. And there was an expectation that the government would come in and bail out [troubled institutions], which reduced the efforts that people made to look at the complexity of these instruments.

Click here.