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From economist-blogger Arnold Kling’s 50-page paper on the financial crisis:

James Kwak, who writes “The Baseline Scenario” with economist-blogger Simon Johnson, explains:

Basically, Kling says that the crisis was composed of the things along the top, which were caused by the things on the left. You can see that he places the blame squarely on poor capital requirements regulations, which gave various banks incentives to (a) originate-to-distribute instead of originate-to-hold; (b) securitize every which way they could; (c) use credit default swaps to reduce capital requirements even further; (d) stuff toxic securities into SIVs; etc.

Because he believes that weak capital requirements (which determine how much capital banks must have on hand in relation to their liabilities) were central to the crisis, Kling thinks we should “encourage financial structures that involve less debt, so that resolution of failures is less complicated” and try to “foster a set of small, diverse financial institutions.” Kwak mostly agrees with Kling’s recommendations, but thinks that Kling should have put more emphasis on making “key institutions” smaller. In any case, you should be reading both of them.

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We didn't know what to expect when we told you we needed to raise $400,000 before our fiscal year closed on June 30, and we're thrilled to report that our incredible community of readers contributed some $415,000 to help us keep charging as hard as we can during this crazy year.

You just sent an incredible message: that quality journalism doesn't have to answer to advertisers, billionaires, or hedge funds; that newsrooms can eke out an existence thanks primarily to the generosity of its readers. That's so powerful. Especially during what's been called a "media extinction event" when those looking to make a profit from the news pull back, the Mother Jones community steps in.

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