The Market For Mistakes, Ctd

by Patrick Appel

A reader writes:

I don't think that classical economists would make the argument that the market never gets things wrong, but they may have a different take as to why mistakes get repeated/aggregated and what to do about them.  In the subprime mortgage example given, classical economists would point to three market problems - information asymmetry, agency problems and government intervention.  Information asymmetry shows up when investors buy mortgage pools, but have no idea a...