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« The Key Market Issues | Main | Government Action and Economic Problems »

February 11, 2008

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oldprof

Mike -

The focus on the Buffett proposal was whether it "solved" the problem. Many observers noted that instead, it isolated the problem.

Whether the government should act on the CDO aspect, or whether private actors can and should do so, is the key question.

More on this in the future.

Thanks,

Jeff

oldprof

Turley-

Thanks for the very thoughtful comment. When economists are writing a popular and regular column, perhaps the temptation is for readership rather than data and analysis.

Some of these writers want to have a public policy effect, and make the best effort to do that. Some occasional contributors, like David Malpass, regularly include a lot of supporting data.

When doing a media spot, contributors are encouraged to be opinionated and make specific recommendations.

Meanwhile, there are plenty of good economics blogs, by thoughtful academics and former Fed types.

A stimulating question!

Jeff

Mike C

Fascinating developments with Buffett stepping in to essentially "solve the problem" with respect to the municipal bond side.

Seems to me this changes the whole equation with respect to any government plan to "bail out" the insurers. Is there any compelling government interest at all with the CDO and other miscellaneous "toxic debt" if a private party is willing to step in and guarantee the government bonds?

Turley Muller

Jeff,
Great article as always.

Expert views on government bailouts, specifically the mortgage pool insurance- I, just like you said, almost always see and hear the opinion or normative economic side.

It seems its always a debate over moral hazard and teaching a lesson do that risk actually means risk. That's a given. But, the Fed's job is not to monitor and regulate moral hazard or behavior of organizations.

The Fed's mission is to promote price stability and full employment (GDP). The short-run the Fed seeks to make sure financial system flows and contain troubled areas so that it they don't manifest and spread through the whole system.

Like I think you were saying, we need more commentary on how the bond insurance affects the areas- specific indiustries that could see major job losses or basically "go away" - consumer spending (majority of GDP) - Investment (GDP)- inflation and interest rates - lenders - and so on.

If insurance affects access to capital then investment will suffer, thus less jobs meaning less consumer spending, and so on ..... I would think. Also, if assets held by financial institutions are insured with policies that the market has little faith in, then those financial institutions will have to borrow at a higher rate because of the risky assets so they will have to lend at a higher rate and then .. you know the rest and goes on and on..

I assume what we need to know is what other areas of the financial system and economy will be affected if no bailout. How severe? How far problems spread ? How long problems would they persist?

It's not about government protecting big business and wealthy investors, and if firms were greedy and should bear full responsibility and be punished.

Congress and other agencies need to get involved to enact regulation that would relieve pressure and make less probable that these issues will arise again.

MSM rarely has fact-based analysis, mostly belief based.

I have a question, Jeff why do even the distinguished experts focus on their opinion, take Paul Krugman, credentialed economist who only provides opinion. Is economics not a science?
Krugman describes himself as an economist, yet he is a philosopher, and so many more are too- normative economist. Everyone has an opinion- nearly infinite "what should happen", but a fact can only represent one "what is"

The problem I see with blogs all the time is that authors sometimes don't even attempt to add supporting evidence to their theories. If one is to give an opinion, at least provide fact-based logic that strengthens the argument.


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