Robert Waldmann I’m still thinking about Krugman’s excellent little model which gives the very clear result that optimal macro policy implies that unemployment is always at the natural rate and so, if the nominal interest rate is zero, the optimal fiscal stimulus should drive unemployment all of the way to the natural rate. Krugman’s model […]
Robert Waldmann is back to his CDS obsession. Imagine I’m a banker and I have this problem that they tell me I have to mark assets to market. I don’t like that because it makes my stated profits vary and my bonus depends on accounting profits and I don’t like the risk. How can I […]
Robert Waldmann Krugman worries about deflation. He performs a simple calculation Now here’s the thing: the slump of the early 1980s produced the Great Disinflation, which brought the core inflation rate down from about 10 to about 4. This time, however, we entered the slump with a core inflation rate of about 2.5 percent. If […]
Robert Waldmann dares comment on Paul Krugman’s Optimal Fiscal Policy in a Liquidity Trap. Krugman argues that, when we are in a liquidity trap, the fiscal authority should use expansionary fiscal policy to keep the unemployment rate exactly at the NAIRU. Since writing the post, Krugman has been wondering why Obama is so much less […]
Robert Waldmann Brad DeLong boldly attempts to exhaustively list the factors which can affect the value of a fixed income asset. This is some Mac generated i document and I can’t cut and paste. Go here and search for “there are four”. The four are called “default”, “the safe real interest rate”, “risk”, and adverse […]
Robert Waldmann I understand that traders are compensated roughly half based on mark to market profits in a given year and half on long term outcomes (the was the AIG AIG-FP deal). This implies that many people made a lot of money being wrong about the housing bubble etc. It also implies that the conditions […]
Robert Waldmann While blogging here at Angry Bear, I have been almost as blunt and direct as I am ignorant, but I would like to be much more frank in this post. The question, roughly, is which innovative financial instruments and trading strategies are socially useful. This is important, because people argue against draconian regulation […]
Robert Waldmann ended my last post 5 minutes ago wishing for part III of the saga and here it is !The final act for AIG by Robert O’Harrow Jr. and Brady Dennis The collapse was, of course, quick when it came. One interesting fact is that AIG Financial Products (AIGFP) stopped writing new CDSs in […]
Robert Waldmann The second of three parts of Dennis and O’Harrow’s series on the downfall of AIG introduces two new features—credit default saps and Joseph Cassano. Together the two managed to bring down AIG. Thus far we have only read about how AIG got into the business of writing CDSs — it seemed too good […]
Robert Waldmann Over at the Washington Post, Robert O’Harrow Jr. and Brady Dennis have a fairly interesting first of 3 articles on what went wrong at AIG. Of course, they tend to stress personalities and personal conflicts, but they do slip in some good points about economics. I’d say the key bit was that AIG […]