Relevant and even prescient commentary on news, politics and the economy.

Kevin Drum makes me blow a gasket

Robert Waldmann can’t help but argue at very great length that one sentence by Kevin Drum is totally utterly completely wrong. “The public face of his economic policy, after all, was almost entirely based on tax cuts, a distinctly conservative notion.” Andrew Sable makes a much better counterargument than mine here. Mr Drum has fallen […]

Exit Pollster Hell

Robert Waldmann update: OK after getting burned in 200 and 2004 (to paraphrase our President:fool me once shame on you fool me uh fool … you can fool me twice) only a fool would believe in exit polls tonight (and note the obvious below). But I just can’t help myself. Looks like the exit pollers […]

WaPo on AIG

Robert Waldmann read Carol Leonnig’s article which quotes many people arguing that the feds should have let AIG file for chapter 11. The point of the complainers is simple, the takeover has been very (realtively) good for counterparties but not so good for the treasury or, it is alleged, AIG shareholders. I don’t see how […]

Behavioral Economics and Conservatism

David Brooks has noticed the increasing popularity of behavioral economics. He argues that it would be a mistake to allow the recognition that people aren’t perfectly rational to convince us that policy makers should intervene more in the economy, since they aren’t rational either. My reaction is that, of course, the level of sophistication required […]

Hedge fund crisis on shedule

Robert Waldmann In a particularly silly op-ed Sebastian Mallaby argued that deregulation wasn’t the cause of the financial crisis and presented as evidence the fact that hedge funds, which are regulated even less than investment banks, are doing fine. Of course the reason that there wasn’t a run on hedge funds is that investors can’t […]

Selling equity in your house

Robert Waldmann was working on a post about how financial innovation is profitable and pernicious. The ideas are that profitable new financial instruments are used to evade prudential regulations and to make financial markets more confusing so unsophisticated investors can be fleeced. Then I thought of a kind of financial innovation which might be profitable […]

Did Lehman Manage that ?

Robert Waldmann had a post entitled “How did Lehman manage That?” asking how Lehman’s debt could sell for about ten cents on the dollar. A commenter told me I was confused and that Lehman’s accountants would have warned investors if there was anything, along the line of the things I imagined, lurking in their detailed […]

The Wrong Crisis

Robert Waldmann What isn’t going on in financial markets ? There are various theories of the financial crisis which suggest simple solutions and have the only defect that they are fantasies. 1) The only problem is mark to market accounting. Market prices for mortgage backed securities (MBS) are very low because of a panic. Banks […]

more on Mallaby

Robert Waldmann Looks like I should have put the post to which the post below links here. Thanks for clicking the link. I will try to add up by adding a point here. Sebastian Mallaby argues that deregulation did not cause the crisis, because hedge funds are regulated even less than investment banks. Based on […]

General Equilibrium theory and Finance

Robert Waldmann I wrote a post below on how economic theory as presented to the public and economic theory are very different. In particular, even given the standard super strong assumptions, economic theory does *not* imply that Laissez faire is the best policy, does not imply that market outcomes are even Pareto efficient (a very […]