Risk Premium and Multiple Interest Rates

John Taylor has a blog post linking videos by him and Alan Blinder on changes they made to their South-Western Cengage economics textbooks in light of the recent craziness in the economy. (via Thoma)

Taylor's is typically awful given that he's a conservative. Blinder's is good given that he has added section on bubbles, unconventional monetary policy, the mortgage market and multiple interest rates among other things.

Multiple Interest Rates
What happened recently was that Treasury/government interest rates dropped and private interest rates rose given the increase in risk premiums. The spread rose after the panic of 2008. So the private market "impared" credit and destroyed it and it was up to the government to make up the difference.

The Federal government did somewhat, but state and local governments "impared" credit and demand and Republicans tried to block anything that would help the economy.