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Another Financial Prophet Unearthed

In the wake of any financial crisis, a few people are always trotted forth (sometimes they do the trotting themselves) as having seen the particulars of the crisis in advance — but who, despite all their hand-waving and teeth-gnashing, were roundly ignored. In the Wall Street Journal, Jason Zweig profiles Melchior Palyi, an economist who seemingly predicted many of today’s big economic problems. But here’s the twist: he did it some 70 years ago. Palyi was a vocal skeptic of credit rating firms, and worried that liquidity was being replaced by “shiftability,” risk that could be “be magnified into catastrophic dimensions.” Palyi also argued against an emphasis on universal home ownership, quantitative easing and too much credit. “Mr. Palyi was fond of saying that sooner or later, too much credit always turns into a giant debit as borrowers crumple under the burden of escalating interest payments,” writes Zweig. (HT: Marginal Revolution) [%comments]