Subprime loans like investments in the Third World?
I reacted to some of the comments to this post on Paul Krugman's blog by posting my comment. It's #21. I point out there that increased inequality of income and wealth is likely contributing to our economic malaise by constraining consumption, a point that is more germane to this earlier Krugman post, Third World America. PK briefly discusses there a recent paper by others that shows how petrodollars pumped into the economies of developing countries led to the financial crises of those nations in the 1980s. The paper suggests that a trillion foreign dollars have recently been invested in a "developing economy" within the USA--undersecured housing loans that are sure to generate major losses, raising the question whether the resolution of this will also involve a financial crisis. Several comments to that post are insightful.
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