Marginal Revolution

The N word

No, not that N word, the other N word.  Nationalize.  As in nationalize a financial institution here and there.

Do you know how Paul Krugman is following the TED spread as an indicator of current financial troubles?  I'll be following how many times the N word pops up in Google News.  Right now the top mentions all concern other countries, of course including Northern Rock in Great Britain.  So far this is the closest I've found to hints of nationalization for the United States; in the blogosphere Nouriel Roubini is saying nationalization is better than bailouts.

The Swedes, of course, nationalized Nordbanken, their #2 bank at the time, in the early 1990s, during their financial crisis.  They also nationalized Gotabanken and supplied funds to several other institutions.  The belief at the time was that loan liquidation would have been even worse.  And since Nordbanken was on life support anyway, and the government had to limit systematic risk by paying off creditors anyway, why not just control the bank directly?  The bank was subsequently re-privatized.  You'll find more background on the Swedish experience here.  Of course in these situations none of the options are pretty.  But keep in mind that the Fed (and ultimately, the taxpayer) is already residual claimant on the Bear Stearns deal and then read Mises on the dynamics of interventionism.

There are many things we do not do as well as the Swedes.  In any case, if use of the N word remains spotty or non-existent in the U.S., you'll know that things are going OK, at least relative to what might have happened.

Addendum: Brad DeLong has much to add, including some policy recommendations.  Arnold Kling doesn't agree.

Hedge fund wizards

By Dean Foster and H. Peyton Young.  They fear that hedge fund managers can write a series of naked puts with high probabilities of above-average returns and low probabilities of extreme disaster.  Most of the managers will establish track records and attract more funds.  They gain on the upside but don't lose that much on the downside.  The key problem is that investors judge investors on the basis of observed past performance, not the entire probability distribution they have created.  Yet the latter is what we all end up having to live with.

The prostitution "crackdown" in the Netherlands

Read this for a public choice interpretation, and here are some real Dutch facts.  Here goes:

The real point is real estate. The red light district is in the oldest, most beautiful area of Amsterdam. In the last 20 years, it has changed from a mixed neighborhood to one almost exclusively peopled by the very well to do. They pay a fortune for those apartments and homes. The talk of cleaning up the neighborhood for the sake of the prostitutes and to lessen criminal behavior is simply a smokescreen. What they wish to do is to create a more up-scale neighborhood - it is gentrification pure and simple.

What is offensive in all this is that anyone who bought a home in that area knew what they were getting into - large crowds every night and all night long. It is to lessen this that the district is being “shrunk”. Less windows for the prostitutes - a more compact area for the tourists - less annoyance for the wealthy.

It is not about anything more than that.

Jim is also right on the mark.  Nick talks about Australia.  HP cites Nevada.