Asset shedding can be as extreme and divorced from fundamentals as the build-up of debt that had preceded – and largely caused – the crisis.
In addition, a failure to continue to vigorously address the corporate governance issues of the past few years could also threaten the current boom. As I noted earlier, the efficient channeling of capital to innovators has been a critical component of past productivity booms. Fraud or dishonesty in corporate accounts increases investors’ risk, raising the cost of capital and reducing incentives for investment.