collapse, and moral hazard – in a single simple account. We locate the causes of the crisis in poor financial regulation …

world rate of return on their borrowing, following an adverse shock; by assumption, they do not default. This is onerous …, since the shock makes the marginal product of capital fall to less than the world rate of return, and creates a debt …

-investment caused by weak financial regulation and exacerbated by government guarantees. Following Dooley, the government only has a …