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Overheating in Credit Markets
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Overheating in Credit Markets

Origins, Measurement, and Policy Responses

Jeremy C. Stein
Federal Reserve Board, 2013
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Editorial Rating

8

Qualities

  • Innovative

Recommendation

Jeremy C. Stein, a member of the US Federal Reserve Board of Governors, discusses the warning signs of overheating in credit markets. Readers will see why The New York Times calls him the Fed’s “bubble cop.” Stein advocates policies that safeguard the integrity of credit markets but acknowledges that the Fed’s corrective action tools are not infallible. getAbstract recommends his incisive analysis to academics, policy makers and financial services professionals who seek insight on how to identify and handle credit market booms.

Take-Aways

  • Two alternate – but not mutually exclusive – views attempt to explain why the pricing of credit risk fluctuates over time.
  • First, the “primitive preferences and beliefs view” suggests that investor sentiments, which are often irrational, govern variations in market values.
  • Second, the “institutions, agency and incentives view” argues that those responsible for making credit decisions can manipulate rules to boost performance and profits.

About the Author

Prior to his 2012 appointment to the Fed’s Board of Governors, Jeremy C. Stein was an economics professor at Harvard and a senior adviser to the Obama administration.

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