Crisis lessons: bad students

In the beginning, there was only a financial crisis. When the US subprime mortgage market blew up in August 2007, few economists worried too much about the wider impact. Their models usually didn’t include many financial variables. Besides, there were rich investors around the world to help any banks that got into trouble, and central banks would keep markets moving. In retrospect, that calm was foolish. The financial woes spread and gradually seeped into the rest of the economy. Two years on, ...