Kyle shows Paulson's connection
Kyle Barker finds a cool way to trace
Treasury Secretary Hank Paulson’s connection with the
financial world:
Following our discussion in class last Wednesday, I found this 'widget' showing the various connections that Paulson has to the financial sector quite interesting. It'd be great to see one for Bernanke as well. http://www.propublica.org/special/degrees-of-hank-paulson/
Following our discussion in class last Wednesday, I found this 'widget' showing the various connections that Paulson has to the financial sector quite interesting. It'd be great to see one for Bernanke as well. http://www.propublica.org/special/degrees-of-hank-paulson/
Daniel on Greenspan
Daniel Sounders on Greenspan’s legacy:
“Taking a hard look at a Greenspan legacy: dirivatives and ethics (on the NY Times).
This is a quite accurate portrayal of the Greenspan legacy. The idea of derivatives limiting risk would hold true if businesses did not use them to take risks. Futures, in particular, help guarantee prices even in times on monetary uncertainty. Instead the companies used them to take risks that had unknown costs, or unknown-unknowns. The current situation shows businesses used derivatives in a way that completely shattered their credibility but limited their liability. I’m just pissing in the dark here, but if businesses are profit maximizers that have safeguards from risks, then ethics are simply associated with costs. Greenspan himself told audiences, “I am therefore distressed at how far we have let concerns for reputation slip in recent years.” Obviously even Greenspan is flabbergasted about how businesses used derivatives to exploit the market in anyway possible. Fannie Mae and Freddie Mac basically pushed American consumers out of an airplane without a parachute… with
a smile. The idea of derivatives in a free market is an exceptional idea if the actors that utilize them are accountable via credibility. Oligopolistic Banks and Mortgage brokers are evidently not concerned about credibility, yet these were the enterprises that Greenspan had the most faith in. Which brings me to question, do ethics come at costs for capital markets? And should government bailout business that has proven credibility does not affect accountability? Hopefully this whole situation pushes positive economics to include more variables before they make claims of what “IS”. But I’m not quite sure how to calculate the @#!hole variable.”
“Taking a hard look at a Greenspan legacy: dirivatives and ethics (on the NY Times).
This is a quite accurate portrayal of the Greenspan legacy. The idea of derivatives limiting risk would hold true if businesses did not use them to take risks. Futures, in particular, help guarantee prices even in times on monetary uncertainty. Instead the companies used them to take risks that had unknown costs, or unknown-unknowns. The current situation shows businesses used derivatives in a way that completely shattered their credibility but limited their liability. I’m just pissing in the dark here, but if businesses are profit maximizers that have safeguards from risks, then ethics are simply associated with costs. Greenspan himself told audiences, “I am therefore distressed at how far we have let concerns for reputation slip in recent years.” Obviously even Greenspan is flabbergasted about how businesses used derivatives to exploit the market in anyway possible. Fannie Mae and Freddie Mac basically pushed American consumers out of an airplane without a parachute… with
a smile. The idea of derivatives in a free market is an exceptional idea if the actors that utilize them are accountable via credibility. Oligopolistic Banks and Mortgage brokers are evidently not concerned about credibility, yet these were the enterprises that Greenspan had the most faith in. Which brings me to question, do ethics come at costs for capital markets? And should government bailout business that has proven credibility does not affect accountability? Hopefully this whole situation pushes positive economics to include more variables before they make claims of what “IS”. But I’m not quite sure how to calculate the @#!hole variable.”
Amy on Central Bank's independency
Amy Hempe on central banks’
independency:
“In class this week we discussed the implications of independent banks vs. banks controlled or "influenced" by the government. In general the consensus seemed to be that independent banks were the better option in general because they wouldn't be swayed by gov't politics. So in a move that's really well timed from a class perspective, yesterday's newspapers announced that the Treasury dep't is looking to take "an ownership stake" in US banks, including healthy ones in order to restore confidence and resume bank lending.
Apparently it's a pretty popular idea on Wall Street but that could be the panic talking. People seem to be only thinking about short-term gains from this. Are we in such dire straits that we can't even afford to think about possible long-term consequences? A similar measure was just created in Great Britain, so it will be interesting to compare that to what the US does.”
“In class this week we discussed the implications of independent banks vs. banks controlled or "influenced" by the government. In general the consensus seemed to be that independent banks were the better option in general because they wouldn't be swayed by gov't politics. So in a move that's really well timed from a class perspective, yesterday's newspapers announced that the Treasury dep't is looking to take "an ownership stake" in US banks, including healthy ones in order to restore confidence and resume bank lending.
Apparently it's a pretty popular idea on Wall Street but that could be the panic talking. People seem to be only thinking about short-term gains from this. Are we in such dire straits that we can't even afford to think about possible long-term consequences? A similar measure was just created in Great Britain, so it will be interesting to compare that to what the US does.”
The NYT on the Greenspan legacy
Amy Beres signals a wonderful article
on the NY Times about the legacy of Alan Greenspan
and his love of financial derivatives.
So spoke the ‘maestro’ (Greenspan’s nickname at the time):
“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004
Ahem.
So spoke the ‘maestro’ (Greenspan’s nickname at the time):
“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004
Ahem.
Dani Rodrik on property rights
Dani Rodrik has an interesting post about property
rights on his blog:
“When there are inherent informational limits and unavoidable transaction costs, institutional arrangements that look otherwise crazy may start making a whole lot of sense.” Read more here.
“When there are inherent informational limits and unavoidable transaction costs, institutional arrangements that look otherwise crazy may start making a whole lot of sense.” Read more here.
Nancy responds to Andrew
Nancy Clarkson responds to Andrew’s comment:
“Andrew brings up an interesting question. I believe the US-EU regulation debate stems from cultural differences: Europeans believe corporations cannot be trusted given their profit motive (vs social benefit motive), so they are proactive about regulation. Americans believe the market will punish corporations for any mis-doings, so they are reactive about regulation. In Europe, the government is responsible for protecting the public; in the US, the public is responsible for suing the corporations after the fact to limit malfeasance and protect themselves, or arranging a boycott, or whatever. A great example of this is genetically modified corn: European governments protested against imports as corporations had not proven its safety or long-term effects. In the US, genetically modified corn worked its way into our food supply because someone was willing to buy it. If it turns out to be unsafe, the public/market will respond appropriately.
Instead of attempting to answer Andrew's question by calculating what the US opportunity cost of increased regulation in would be, it might be more relevant to evaluate economic fallout from US crises vs. European crises given the structural regulatory differences. In recent history, crises occurring in Europe appear to be more contained and less of a burden to taxpayers in the long run. Have they ever experienced a crises as systemic as this (within the past 20 years)? Could this be due to cultural differences related to regulation or some other external factor?”
“Andrew brings up an interesting question. I believe the US-EU regulation debate stems from cultural differences: Europeans believe corporations cannot be trusted given their profit motive (vs social benefit motive), so they are proactive about regulation. Americans believe the market will punish corporations for any mis-doings, so they are reactive about regulation. In Europe, the government is responsible for protecting the public; in the US, the public is responsible for suing the corporations after the fact to limit malfeasance and protect themselves, or arranging a boycott, or whatever. A great example of this is genetically modified corn: European governments protested against imports as corporations had not proven its safety or long-term effects. In the US, genetically modified corn worked its way into our food supply because someone was willing to buy it. If it turns out to be unsafe, the public/market will respond appropriately.
Instead of attempting to answer Andrew's question by calculating what the US opportunity cost of increased regulation in would be, it might be more relevant to evaluate economic fallout from US crises vs. European crises given the structural regulatory differences. In recent history, crises occurring in Europe appear to be more contained and less of a burden to taxpayers in the long run. Have they ever experienced a crises as systemic as this (within the past 20 years)? Could this be due to cultural differences related to regulation or some other external factor?”
Agent-based models: better economic theory.
Mark Buchanan on the NY Times explains how agent-based modeling methods
could improve the predicting performances of
economic theory.
He thinks that:
“Better market models alone will not prevent crises, but they may give regulators better ways for assessing market dynamics, and more important, techniques for detecting early signs of trouble”.
He thinks that:
“Better market models alone will not prevent crises, but they may give regulators better ways for assessing market dynamics, and more important, techniques for detecting early signs of trouble”.
What the world thinks of the US financial crisis
Newsweek has an interesting article about foreign
reactions to the financial crisis: ‘Shades of schadenfreude’.