Interview with Eugene Fama: Rational Irrationality : The New Yorker

Eugene Fama theorized "efficient markets hypothesis" that says prices of financial assets accurately reflect all of the available information about economic fundamentals. When asked about solution to present financial crisis, he reluctantly said that solution lies in equity financing. Here is an excerpt from his interview.

"So what is the solution that problem?

The simple solution is to make sure these firms have a lot more equity capital—not a little more, but a lot more, so they are not playing with other people’s money. There are other people here who think that leverage is an important part of they system. I am not sure I agree with them. You talk to Doug Diamond or Raghu Rajan, and they have theories for why leverage in financial institutions has real uses. I just don’t think that those effects are as important as they think they are."

Interview with Eugene Fama: Rational Irrationality : The New Yorker

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