Since we’re on the subject, Chris Caldwell has a really excellent, easily digestible, piece on Raghuram Rajan take on the financial crisis. I think I need to get the book. A long excerpt:

Most notably, in the course of this book Rajan offers a bold and convincing diagnosis of how a screw-up in the regulation of poor people’s mortgages in one country has brought the world to the brink of economic disaster, where it teeters still. He goes beyond the proximate causes of the problem—the subprimes and derivatives and trade imbalances and the like. The ultimate cause, Rajan convincingly argues, is a widening of economic inequality that American politicians of both parties found politically intolerable, and chose to fix by turning the credit market into an under-the-table welfare state.
The growth in inequality has been large, Rajan shows. The top 1 percent of the population have laid hold of 58 cents out of every dollar in income growth since the Ford administration. Rajan shows no interest in being patted on the back for pointing this out. Moralizing is not his intent, and there are no Gilded Age clichés here about the undeserving rich. In fact, as a professor of finance rather than economics, he is able to show us some unfamiliar statistics about the way rich people are rich, and one of the most interesting is that we do not have a particularly big class of idle remittance men. “Even for the richest 0.01 percent of Americans toward the end of the twentieth century,” he points out, “80 percent of income consisted of wages and income from self-owned businesses, and only 20 percent consisted of income from arm’s-length financial investments.”
Rajan is describing not the moral problems of capitalism but the political problems. The median American is losing ground. And while people at the 90th percentile have never had it so good, Americans in the 10th percentile have endured a punishing economy for about a third of a century now. Their problems become particularly acute during recessions. For reasons that are not fully clear, recessions have changed in nature in the last 20 years. Historically, Western economies returned to full employment within a few months of hitting a recession’s trough. Losing a job was a calamity, but a calamity of short duration. Since 1992, however, all recoveries have been “jobless recoveries”—in the 2001 recession, it took more than 38 months for the economy to return to full employment.
And, as Rajan puts it with some understatement, “the United States is singularly unprepared for jobless recoveries.” This is only partly because the United States has a weaker welfare state than other industrialized countries. It is also because the American safety net—in which government provides fewer health and retirement benefits but incentivizes employers to fill the gap—winds up placing all of a person’s eggs in the basket of his job. Lose your job and you lose not only your income but also your (and your children’s) health insurance and possibly (as in several scandalous recent cases) your pension.
Under such circumstances, any recession with the slightest perceptible effect on the public will end political careers by the score. And recessions are, alas, inevitable. The result, under both Democratic and Republican leadership, has been reckless government extension of credit. As a remedy for downturns, this has two political advantages. First, it does not bother conservatives as much as handouts do. Second, “easy credit has large, positive, immediate, and widely distributed benefits, whereas the costs all lie in the future. It has a payoff structure that is precisely the one desired by politicians, which is why so many countries have succumbed to its lure.” You might say that the financial crisis reflects the emergence of the off-balance-sheet liabilities—the human costs—of deindustrialization.
This is an account of what ails us that is radically at odds with the familiar tale of greedy bankers in $5,000 suits. “Almost every financial crisis has political roots,” Rajan writes. The credit market—at least as regards housing—was distorted by government policy, not by a sudden and mysterious escalation in “greed.” The trends that shook the world economy came out of Fannie Mae and Freddie Mac, out of the Federal Housing Administration, and out of their “regulator,” the U.S. Department of Housing and Urban Development.

Read the whole thing, as the say.