Stiglitz & Australia

A number of people have recently pointed out to an op-ed by far-left economist Joseph Stiglitz saying that Australia has nothing to worry about economically speaking.

While it is true we are in a far stronger position than many other counties, a result of the legacy of previous governments, I wish to point out one fact.

Most serious economists now admit that one of the core reasons for the GFC was the role of Government Sponsored Enterprises in the United States, specifically Freddie May and Fannie Mac.

When many on the right were screaming out that this would inevitable end in collapse, what was Stiglitz doing?
 In 2004, along with Jonathan and Peter Orszag, Professor Stiglitz wrote a paper for Fannie Mae in which he “estimated” that the “risk to the government from a potential default on GSE debt is effectively zero.”  The paper goes on to argue “that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.”

Now I understand his Nobel is in economics, not math, but $2 million sounds no where near the actual cost so far of $160 billion.

Does Australia really want to take advice from the person who was defending the core institutions responsible for the GFC, and who was advising the Greek Government in 2010 arguing that Greece was "on track to meet its obligations"?


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