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December 03, 2007



Maybe not today, maybe not tomorrow but soon I plan to steal this thought:"Surely I am not alone in being struck by the fact that the Nutroots (of which I am deeming Krugman to be an honorary member) spend a small fraction of their time deriding the Republicans as seeking a strong father figure to protect them from terrorists and brown people, and a large fraction of their time clamoring for a strong government figure to protect them from everything else?"


Definitely steal worthy!! I love that, TM!

And though they despise Evangelical Christians, they themselves pray for the trinity of Krugman, Olbermann, and Froomkin to deliver them from evil.


Krugman was featured as a guest host/color commentator on CNBC a week or so ago on one of the morning shows.
He showed what a "maroon" he is and didn't get too much air time.


This is the seeming topic of the CNBC day.


Tom, a superb takedown of Krugman. Top notch work.


Sorry to intrude, but I think Andy McCarthy's article on FISA at Human Events is so good that it should be read by everyone who give's a rip about national security.  It is a brilliantly simple explanation of the looming train wreck that is FISA "reform."  It's called FISA Reform Debacle in the Making.  Read it.  Really.

Georg Felis

It takes a pretty poor economist to get beaten up by a strawman arguement, but Krugman did it again.


Hm, If you ignore the fact that Krugman and many other economists have been sounding the alarm about housing prices since about 2000, I suppose you can believe that. I know Greenspan is the patron-saint of free markets, but I find it hard to believe that even as he was warning of problems in the market, in his own opaque way, he was dropping interest rates to keep it going until he bailed, people still believe this is just the rise and fall of a business cycle.

Execs at construction and real estate companies didn't - many of them sold large quantities of stock in their own companies last year. Go figure.

Charlie (Colorado)

Surely I am not alone in being struck by the fact that the Nutroots (of which I am deeming Krugman to be an honorary member) ....


Sadly, Georg already hit my other snarky remark.


Krugman vs. the Strawmen

Down goes Krugman!!!Down goes Krugman!!!


Autoeconomic asphyxiation.

Charlie (Colorado)

Autoeconomic asphyxiation.

There's a phrase to be preserved in lucite for future generations.

Patrick R. Sullivan

For the perspective of a grown-up economist, Steve Cecchetti has a four parter that begins here. From Part 1:

Even with intense oversight by the governmental authorities – in the United States we have the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve, as well as state banking authorities – crises continue to come. One reason for this is the natural tendency of officials to fight the last battle; looking for systemic weaknesses revealed by the most recent crisis. So, when complex automated trading schemes were thought to have contributed to the October 1987 stock market crash, circuit breakers were put in place that shut down computers-based order systems when indices move by more than a certain amount. In the aftermath of the Asian crisis, the IMF created new lending facilities in an attempt to address issues of contagion – in essence, to deal with countries that were innocent victims of problems created elsewhere. And when LTCM collapsed there was a flurry of activity to understand and the potential impact of what were called “highly leveraged institutions”.

As necessary as each of these reforms may have been, we are not going to stop tomorrow’s crises by looking backward. Financial innovators will always seek out the weakest point in the system. Innovations will both exploit flaws in the regulatory and supervisory apparatus, and manipulate the inherent limitations of the relationship between asset managers and their investor clients. The 2007 crisis provides examples of both of these.

....Managers of financial institutions will always search for the boundaries defined by the regulatory apparatus, and they will find them. After all, detailed regulations are a guide for how to legally avoid the spirit of the law. And the more detailed the rules, the more ingenious the avoidance. This brand of ingenuity is very highly rewarded, so I am sure these strategies will continue.

....Both individuals and government officials need to make adjustments. Individual investors need to demand more information and they need to get it in a digestible form. As individuals we should adhere to the same principle that President Ronald Reagan followed in agreements over nuclear weapons with the Soviet Union: Trust, but verify. We should insist that asset managers and underwriters start by disclosing both the detailed characteristics of what they are selling together with their costs and fees. This will allow us to know what we buy, as well understand the incentives that our bankers face.

As for government officials, most of the lessons point to clarifying the relative riskiness associated with various parts of the financial system. Elsewhere I have suggested that at least some of the problems revealed by the current crisis can be ameliorated by increasing the standardization of securities and encouraging trading to migrate to organized exchanges.


This is the point in the discussion where I drag out my old anecdote:

Back in the halcyon days of August, 2001, my college buddy (and fellow Deadhead!) was called upon by that august firm, Standard and Poors. As an analyst, he rendered the Firm's opinion on the bonds used by Silverstein to finance his purchase* of the World Trade Center (enthusiasts will recall that the transaction closed on August 24, 2001). His deathless prose?

'The security for these bonds is not as good as gold, it is better than gold.'

*Yeah, I know, it was a 100-year-lease. It reads better as 'purchase'. Cry me a river and then tell me the NPV of the difference between the two.


Autoeconomic asphyxiation.


I wanted to tell you that I've really enjoyed your comments lately. Not just the debate live-blogging, but the everyday observations as well.


(I reserve the right to repost this in a thread Elliot is likely to read.)


I'm going off to read the Steve Cecchetti link, to find out if he mentions what I think is an important factor: Demography Is Destiny.

My parents were born in the mid-30's. They are a small birth cohort because times were tough. They are especially small compared to the Baby Boom (of which their children are at the tail end of.) As they were in their peak investing-for-retirement years (80's and early 90's) the Boomers were coming into their peak productivity and consumption period. So my parents' were investing money when investment money was relatively scarce (because their birth cohort is small) and in high demand to be put to productive use by us Boomers (because our birth cohort is so large.) The markets boomed, while volatilities were fairly low. (Even in 1987 the annual volatility was 15%...)

Ok, compare that to what the Boomers are facing in our prime investing-for-retirement years. There are way more of us, so more investment capital. There are way fewer folks in the baby bust generation, so there are fewer productive projects out there. Both of those together mean that we will have a much harder time making every tick of investment return -- or, in the starkest terms, we will have to invest in far riskier investments to get the same returns as our parents got, or if we invest in things as safe as our parents did, we will have to settle for very anemic returns.

And that's what I think was the fundamental force behind this whole subprime mortgage debacle. Supply and demand -- there is this huge amount of capital sloshing around in hedge funds. There is this huge amount of capital sloshing around in 401K's and IRA's and other relatively "safe" and "prudent" vehicles. All of the prudent money out there is driving down returns on low-risk and medium-risk investments, and so the hedge funds are going out looking for higher returns. Which they are finding exactly where you expect to find the highest returns -- in the highest risk investments.

Ok, so we plug the regulatory holes that allowed this particular high-risk investments -- but the fundamental problem is that they didn't lose nearly enough money for it to matter. There is still way too much capital chasing way too few good investments, and so the rest of it is going into crappy investments.


Thank you for your kind words, Walter.* Sorry about the Tigers.

I truly appreciate the opportunity to read the insights TM and all** who comment at this great place dispense. For my own contributions to bring enjoyment makes it that much better.

*In homage, there will be footnotes.

**Okay, okay, there are exceptions.

Rick Ballard

"There is this huge amount of capital sloshing around in 401K's and IRA's and other relatively "safe" and "prudent" vehicles."

Yup. More than $17 trillion, throwing off more than $2 billion per day in income and demanding that the money runners sprint for the entire marathon.

Odd that the doom mongers never note that the Boomers are going to start recycling that dough on a wholesale basis beginning in January. It must be a secret.


Drat. First rule of compliments is to spell the name right. Sorry!

Thanks for the sympathy. It's still the best season since before I was born.* The semester I 'attended' MU, the team won no games at home and only one overall. I'm still living the dream.

* Well, by some measures, ever. But who's counting?

If your comments get long enough (I'm sure at least a few of mine qualify), you get to refer to your annotations as endnotes.


If your comments get long enough (I'm sure at least a few of mine qualify), you get to refer to your annotations as endnotes.


Welcome to our game world, my friend asks me to buy some wakfu gold .

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