Best Quotes from Freefall by Joseph E. Stiglitz with Page Numbers

The only surprise about the economic crisis of 2008 was that it came as a surprise to so many.

A deregulated market awash in liquidity and low interest rates, a global real estate bubble, and skyrocketing subprime lending were a toxic combination.

The richest country in the world was living beyond its means.

Americans had, in a sense, been living in a dream.

The breaking of the bubble... was out of kilter.

Americans came up with an ingenious solution: borrow and consume as if their incomes were growing.

In short, there was little or no effective 'quality control' in the market.

The financial system is now so intertwined and central to the economy that a failure of one large institution can bring down the whole system.

Every successful economy—every successful society—involves both government and markets.

We can’t go back to where we were before the bubble broke in 2007. Nor should we want to.

What was unfolding was the predictable and predicted consequences of the bursting of the bubble.

It was just that the United States had been spared such bubbles for decades after the Great Depression because of the regulations the government had put in place after that trauma.

The best bet was that the 'green shoots' seen in the spring of 2009 indicated a recovery in some of the areas hit hardest at the end of 2008 and the beginning of 2009.

Without a vision, the whole 'reform' process might be seized by those in the financial sector, leaving the country with a financial system that was even more fragile than the one that had failed.

We needed to have more money going into America’s high-tech sectors, to create new businesses and expand old.

One of Obama’s great strengths was engendering a sense of hope, a feeling about the future and the possibility of change.

When an economy is weak, very weak as the world economy appeared in early 2009, attack with overwhelming force.

It was a question of how they saw the world and how Americans would see them.

If our quiet attempts to curb what seem like from today’s perspective mild excesses met with such opprobrium, what might we expect from a direct attack on the unprecedented transfer of money to America’s financial sector?

Every strategy involves risks, but it was not clear that this strategy would minimize those risks over the long run.

The single most important idea in dealing with the aftermath of a crisis is a simple one: crises don’t destroy the assets of an economy.

What happens in a crisis is that confidence and trust erode, the institutional fabric of a society weakens.

The key question is, how will resources be used after the bubble is broken?

It is imperative to get money into the economy quickly.

Effectiveness means a big bang for the buck—every dollar spent should give rise to a large increase in employment and output.

An effective stimulus would target low national savings, huge trade deficits, and decaying infrastructure.

A country’s debt only measures one side of the balance sheet—what it owes. Assets are equally important.

A well-designed stimulus should deal with as many of these issues as possible.

Sometimes these objectives are in conflict, and sometimes they are complementary.

If the stimulus money is spent on investments, these adverse effects are less likely to occur.

Owning a home has always been a staple of the American dream and indeed an aspiration all over the world.

Many of the forms submitted by brokers on her behalf belied Ms. Canales’s true income.

Even some people who had kept up on their payments and taxes found their houses put up for auction without their knowledge.

With the loss of their homes, many Americans are losing their life savings and their dreams of a better future.

Good financial markets are supposed to do what they do efficiently, and that means at low transaction costs, that is, low fees.

The system worked pretty well. Homeowners’ aspirations for a large home were dampened by the reality that they had to put up 20 percent of its value to get a loan.

Innovation responds to incentives, and the incentives were to create products that generated more fees now, not products that managed risks better.

Whether through incompetence or flawed incentives, that’s what happened.

The U.S. government has repeatedly had to take the initiative in innovating financial products that meet the needs of ordinary citizens.

The real challenge is how to save the homes of the hundreds of thousands of people who would otherwise lose them without bailing out the banks.

Capitalism can’t work if private rewards are unrelated to social returns.

Real reforms were and are needed—not just cosmetic ones.

The success of the financial sector is ultimately measured in the well-being that it delivers for ordinary citizens.

Too many bankers forgot that they should be responsible citizens.

The entire series of efforts to rescue the banking system were so flawed, partly because those who were somewhat responsible for the mess... were put in charge of the repair.

Bailouts inevitably distort incentives.

The government should have played by the rules and 'restructured' the banks that needed rescuing.

Action is what matters, and the actions of the Fed and Treasury undermined confidence.

The perception, and reality, that the rescue packages were 'unfair'... has made dealing with the crisis all the more difficult.

There is still a chance for the American political system to restore a modicum of confidence in itself.

The crisis has made it clear that self-regulation—which the financial industry promoted and which I view as an oxymoron—doesn't work.

The existence of deposit insurance puts taxpayers in jeopardy if banks undertake excessive risk, and so the government needs to make sure that the banks it insures act prudently.

If the government is going to come in and pick up the pieces, it has to do what it can to prevent the accidents.

When private rewards are well aligned with social objectives, things work well; when they are not, matters can get ugly.

An important example of an incentive distortion is how many executives are paid: with stock options.

The incentive schemes that produced misaligned incentives did not serve shareholders well, and did not serve the world well.

The devil is in the details. And with complex regulations... there is a risk that the details will be such as to give the banks the ability to carry on much as they did before.

We need to realize the pressure that regulators are under not to regulate—and realize the risk of the appointment of another Greenspan, someone who doesn’t believe in regulation.

If some banks are thought to be too big to fail…then they are too big.

A better-regulated financial system would actually be more innovative in ways that mattered—with the creative energy of financial markets directed at competing to produce products that enhance the well-being of most citizens.

We neither can nor should return to the world as it was before.

The restructuring of the economy will not happen on its own.

A clearer vision of where we should be going, and we need to have a clearer vision of the role of the state.

Something amiss: more than a financial crisis.

We are all intertwined.

Decent work is an important aspect of an individual’s self-esteem.

A broader, longer-term vision will ensure that there is more than enough demand to absorb all of the world’s production capacity.

Achieving the new vision will require a new economic model.

It is not inevitable that this should be the case. A 'nanny state' can undermine incentives, including incentives to take risks and to innovate.

If we are to restore sustained prosperity, we need a new set of social contracts based on trust between all the elements of our society.

Economic globalization had made the world more interdependent, increasing the need to act together and work cooperatively.

The current crisis provides both risks and opportunities.

America can afford the hundreds of billions of dollars to pick up the pieces. Poor countries cannot.

With the meeting of the G-20 in Washington... it was apparent that the old institutions were dying.

The whole world was 'in it' together: America had brought down other countries, but weaknesses in the rest of the world threatened America’s ability to recover.

Each country has to be satisfied that others are taking adequate measures to curtail abuse.

A good reserve currency needs to be a good store of value—a stable currency—but the dollar has been highly volatile and is likely to remain so.

The current crisis has brought into full view its limitations.

Without comprehensive regulation, there will be regulatory evasion.

The global economic system has not worked as many had hoped.

If the United States is going to succeed in reforming its economy, it may have to begin by reforming economics.

The market economy was not self-correcting—at least in a relevant time frame.

Government intervention had resulted in a more stable economy.

There is no basis to the argument that because governments sometimes fail, they should not intervene in markets when the markets fail.

Enhancing economic performance requires improving both markets and government.

The failure of the neoclassical model has been highlighted by the current crisis.

Economics is supposed to be a predictive science, yet many of the key predictions of neoclassical economics can easily be rejected.

It was obvious that markets were far from perfectly competitive.

The focus on inflation was predicated on four propositions, none of which had much empirical or theoretical support.

The good news is that while the nonsense of perfect markets may have predominated, some scholars were trying to understand how markets actually worked.

The global economy has just had a near-death experience.

This moment is one of reckoning and reflection, of thinking about what kind of society we would like to have.

We have gone far down an alternative path—creating a society in which materialism dominates moral commitment.

There is need for collective action—there is a role for government.

If only social returns were commensurate with private returns.

What we do has large effects on others; and we are what we are at least partly because of the efforts of others.

In the long run, society cannot function well if people do not take responsibility for the consequences of their actions.

We need measures that focus on how the typical individual is doing.

The irony of the way the model of American individualism worked in practice was that people took credit for successes but showed little sense of accountability.

We have the opportunity to create a new financial system that will do what human beings need a financial system to do.