Department of "Huh?!" (Shut Down the Washington Post Today Department)
Yet Another Reason the Country Would Be Better if We Shut the Republican Party Down Today...

Eleven Items Worth Raeading, Mostly Economics, for April 18, 2010

  1. Krugman: "So: what’s the problem? Here are the views I see out there: Size: Our largest financial institutions have just gotten too big. Shadows: The rise of shadow banking, institutions that fulfill banking functions but evade the regulatory regime, has undermined stability. Opacity: We’ve come to rely on complex financial instruments that neither regulators nor the private sector. Predation: Financial firms deliberately misled consumers and investors. Government intervention: Public policy pushed lenders into making bad loans, especially to the poor. Monetary mismanagement: The Fed did it by keeping interest rates too low for too long, and/or policymakers panicked in 2008 and spooked the markets." Put me down as believing that "shadows" and "opacity" are our big problems, with predation behind them, and the remaining three--size, mismanagement, and government intervention--not really on the track at all.
  2. Yglesias: "Every time there’s a downturn a certain swathe of the elite starts to label it unfixable and structural. And the worse the downturn, the louder come the calls. Look at the history of the Great Depression... chorus of voices from the right arguing that nothing could be done and people would just have to suffer through it. They were countered by a chorus of voices from the left arguing that nothing could be done and people would just have to stage a revolution. It wasn’t true then and it wasn’t true now... key people responsible for running the global economy... are screwing up. In the developed world, those countries who’ve been able to respond aggressively to the crisis with aggressive expansion-via-devaluation are all doing pretty well. The bigger developed economies can’t do that exact thing, but they can mount more aggressive expansionary responses—they just aren’t."
  3. Alan and Yuri: "Our starting point is... Blanchard and Perotti (2002).... Alternative identification approaches, notably the narrative approach.... Our paper extends the existing literature in three ways: (1) Using regime-switching models, we estimate effects of tax and spending policies that can vary of the business cycle. We find large differences in the size of fiscal multipliers in recessions and expansions.... (2)... we estimate multipliers for more disaggregate spending and tax variables... (3) We provide a more precise measure of unanticipated shocks to fiscal policy... Survey of Professional Forecasters.... This correction generally increases estimated multipliers and also increases the gap between multipliers estimated for expansions and recessions.
  4. Clinton: "Most of the people killed that day were employees of the federal government. They were men and women who had devoted their careers to helping the elderly and disabled, supporting our veterans and enforcing our laws. They were good neighbors and good friends. One of them, a Secret Service agent named Al Whicher, a husband and father of three, had been on my presidential security detail. Nineteen children also lost their lives. Those who survived endured terrible pain and loss. Thankfully, many of them took the advice of a woman who knew how they felt. A mother of three children whose husband had been killed on Pan Am Flight 103 in 1988 told them, “The loss you feel must not paralyze your own lives. Instead... pay tribute... by continuing to do all the things they left undone...." We are all grateful that so many of the attack’s survivors have done exactly that. We must also never forget the courageous and loving response of the people and leaders of Oklahoma City..."
  5. Waldmann: "The idea that an investor should earn perfectly safe, above-risk-free yields via blind diversification... is offensive to me and... was false.... According to the story, the... “shorts” were not hoping... that their bonds would fail. They were hedging, protecting themselves against the possibility of failure.... The... investors may have believed that they were overpaying... we... happily overpay for insurance.... Shedding great risk is worth... a small negative expected return.... Derivatives are... positive sum games in an economic sense... hedgers are... better off when they shed risk, even when they overpay... in expected value terms to do so.... Investors in Goldman’s deal reasonably thought that they were buying a portfolio... selected by a reputable manager... optimizing the performance of the CDO..... In violation of these reasonable expectations... a party whose interests were diametrically opposed... [had] significant influence over the selection of the portfolio."
  6. GS: "ABACUS 2007-AC1: $2 Billion Synthetic CDO Referencing a static RMBS Portfolio Selected by ACA Management, LLC"
  7. Tog: "For those of us around Apple for the launch of the 1984 Mac, things are awfully familiar. In bringing that original Mac to market, Steve hit on a formula that worked for him. He keeps repeating it, and it seems to get better every time. It worked for the iPhone, and it worked for the iPad, too. Here are the necessary elements." -Atrios 16:59"
  8. Black: "Hysteresis: The important point is that while it isn't structural now, the longer high unemployment persists the more the amount of structural unemployment will increase. There are a couple of mechanisms for this, the most obvious one being that over time, the skills of unemployed workers deteriorate as technology/practices change. This mismatch between skills of the unemployed and the needs of employers grows."
  9. Black: "Earlier I heard Dana Milbank on NPR whining about the fact that Obama went to his kid's soccer game without bringing the press. These are very silly people."