« Jokes about the financial crisis | Main | USA regulates USA -- whoops! »
Scattered thoughts
Should the Fed burst bubbles? Maybe in its role as regulator, if not monetary policy. Anand draws first blood in an amazing game. Robert Aliber's "pooling equilibrium" idea for reviving asset markets. The splendid Alton Ellis, a giant of Jamaican music, just passed away. Credit indicators are easing. The demand for classic whiskey is robust.
Posted by Tyler Cowen on October 17, 2008 at 04:24 PM in Current Affairs | Permalink
Comments
From the FT article:
"At some stage, liquidity would return to the market in MRS and their market prices would reflect their prospective debt service receipts.
[...]
The accountants and their confrères that insisted on mark-to-market accounting should be made to stand in the corner for six months. The economic and business journalists that have shrilled about bail-outs should be given a six-month assignment to cover the daily fire and police department activities."
That mark-to-market accounting rules were one cause of the aggravation of the crisis is a meme that deserves a better distribution through the blogosphere.
Posted by: Alex at Oct 17, 2008 4:52:39 PM
About the Lahart article in the WSJ,this is the issue. If the Fed causes a slowdown in the economy in order to avoid a bubble, will that be accepted, or will people decry their action as limiting growth without enough cause. On the other hand, through lobbying and other means, they might not be able to deal with the problem companies effectively.
I just don't see people accepting a slowdown, while they perceive themselves as making money, on a theory. Nor, given the evidence of TARP, so far, do I see a lack of lobbying power from banks.
Posted by: Don the libertarian Democrat at Oct 17, 2008 4:59:15 PM
On Alton Ellis, where's a good place to start? Recommend an album or two please.
Posted by: at Oct 17, 2008 5:17:58 PM
Alton Ellis recorded his best material for Coxson Dodd at Studio One and for Duke Reid at Treasure Isle. My favorite stuff is his Studio One recordings but I am a Studio One fanatic. If you were to buy his Treasure Isle material, you would be doing well.
From Studio One, I recommend the following Heartbeat/Studio One packages since they are easy to find (Amazon)..if you want more original packaging..try some of the online pure reggae music distributors like Ernie B
Sunday Coming
I'm Still In Love with You (with Hortense Ellis)
Posted by: gabriel at Oct 17, 2008 5:37:01 PM
Tyler (or anyone else),
Can you recommend a place that covers chess at a level a novice understands? I basically know the rules and have played a dozen times, but don't know a queen gambit from a czech defense.
Posted by: Steve at Oct 17, 2008 6:59:57 PM
Should the Fed burst bubbles?
How about if the Fed just stops creating them? I think that would be more than enough.
Posted by: Alan Brown at Oct 17, 2008 7:01:19 PM
John Conlon at the University of Mississipli's Econ department has some papers on Central Bank bubble-bursting policy, with (what seemed to me) good lit reviews.
Posted by: Jeff Brown at Oct 17, 2008 7:19:21 PM
Should the Fed burst bubbles?
That pre-supposes that they could actually detect a bubble, and not write papers claiming the greatest bubble of all time didn't exist:
Posted by: Robert Wenzel at Oct 17, 2008 7:28:16 PM
So, is the Fed implying they didn't burst the current bubble with a truck full of dynamite?
Posted by: Andrew at Oct 17, 2008 7:29:08 PM
Should the Fed burst bubbles?
The problem is that federal policymakers are not omniscient dieties who can look at the markets from afar and correct their errors. Nor do they any more than market participants have 20/20 hindsight. (Any idiot can spot a bubble after it has burst). They
are human beings embedded in the same culture and thus caght up in the same thought-bubblesas the market participants (in the case of our most recent bubble both regulators and market participants erroneously boosted ideas such as affordable housing and financial innovation obsoleting the old rules, and they both ignored the moral hazard/agency problems caused by securitization). Both
regulators and private risk managers are fighting the same last war, the result being that more regulation tends to exacerbate rather than mitigate market bubbles.
Posted by: Nick at Oct 17, 2008 7:40:23 PM
Steve,
Many, many years ago, I learned the fundamentals of chess from this book by Siegbert Tarrasch. It is a book geared toward beginners.
As you read, I would suggest playing lots if interested. Yahoo Games has a very active chess room with players of all skill levels- I play there often under the ID of madscientist35a.
Posted by: Yancey Ward at Oct 17, 2008 8:31:33 PM
Kramnik is in for a torturous match, in my opinion. He may need to abandon d4 as an opening- Anand was already the world's expert in the Slav Defense and has been husbanding his preparation for some time now.
Posted by: Yancey Ward at Oct 17, 2008 8:37:12 PM
Should the Fed burst bubbles? Maybe in its role as regulator, if not monetary policy.
If one thinks that the Fed created the housing bubble, then the above two sentences are truly scary. It would be akin to Richard Nixon saying, "What's the story with these rising prices?! We'll combat them through legislation, if not monetary policy."
Tyler, I realize you think Greenspan's negative real interest rates were, at most, necessary but insufficient conditions for the housing boom. Fair enough. But even if you think it really was "market failure" that caused the present mess, I am continually surprised at how easily you throw out the suggestion that maybe regulation X or regulation Y, or a few hundred billion here or a few hundred billion over there, will make things better, going forward.
Do you actually trust the real human beings who are in DC right now, or who will be in there after the election, to implement a Pareto improvement? Did you hear Obama and McCain talk about their, shall we say, nuanced endorsement of free trade in the last debate? (Hint: It doesn't include cocaine imports for McCain, and it doesn't include car imports for Obama.) And one of these two clowns is going to correct the flaws in second-best outcomes due to asymmetric information in the financial markets?
Posted by: Bob Murphy at Oct 17, 2008 9:02:43 PM
I, for one, am kind of excited by the thought of a new economic field concerned with bubble detection. Perhaps a new Keynes or Friedman will emerge. Seriously.
Posted by: thehova at Oct 17, 2008 10:26:58 PM
I've been trying to persuade sailors in Wales to bootleg scotch (to Iceland?) without success.
Steve: I would second the suggestion of playing lots (@yahoo for example). I would also suggest chessgames.com so that you can see lots of the patterns for yourself. I've always admired Fred Reinfeld's style in chess writing, but the opening lines he talks about in his primers are largely out of fashion now.
Posted by: rluser at Oct 17, 2008 10:54:30 PM
Here's Bernanke (2002) on the Fed's role in bursting bubbles:
Conclusion
Understandably, as a society, we would like to find ways to mitigate the potential instabilities associated with asset-price booms and busts. Monetary policy is not a useful tool for achieving this objective, however. Even putting aside the great difficulty of identifying bubbles in asset prices, monetary policy cannot be directed finely enough to guide asset prices without risking severe collateral damage to the economy.
A far better approach, I believe, is to use micro-level policies to reduce the incidence of bubbles and to protect the financial system against their effects. I have already mentioned a variety of possible measures, including supervisory action to ensure capital adequacy in the banking system, stress-testing of portfolios, increased transparency in accounting and disclosure practices, improved financial literacy, greater care in the process of financial liberalization, and a willingness to play the role of lender of last resort when needed. Although eliminating volatility from the economy and the financial markets will never be possible, we should be able to moderate it without sacrificing the enormous strengths of our free-market system.
http://www.federalreserve.gov/boarddocs/speeches/2002/20021015/default.htm
Posted by: RCW at Oct 17, 2008 11:06:35 PM
Perhaps the best elementary-intermediate modern guide to chess is Jeremy Silman's Complete Book of Chess Strategy. Silman is a noted modern chess writer and a popular teacher -- deservedly so. He is a better guide for a new player than Tarrasch or Reinfeld who will sound dated. The other good thing is that this book allows you to dip into it from time to time without having to go through cover to cover.
Posted by: jn at Oct 17, 2008 11:19:34 PM
Did not know you guys were into chess!
Posted by: H at Oct 18, 2008 12:33:01 AM
The Federal Reserve should stabilize the value of the dollar, period.
The Fed should have a minimal involvement in the economy, they should really only worry about the value of the dollar, but hey that's in an ideal world. In the real world the Fed thinks they are Superman and can fix something out of their control, when in reality they are more like Hancock, just screwing it up more.
Posted by: torris187 at Oct 18, 2008 12:53:04 AM
Yeah, is it because they are figuring out they are terrible at their one current job that they think they need another responsibility?
Posted by: Andrew at Oct 18, 2008 5:27:48 AM
Is this a countercyclical asset?
http://www.guardian.co.uk/books/2008/oct/15/marx-germany-popularity-financial-crisis
Posted by: Mr Alpha at Oct 18, 2008 7:40:45 AM
Remember when the Fed tried to burst the bubble of stock speculation in 1929? How did that work out? I hear the popped it ok! ;)
Posted by: mr. econotarian at Oct 18, 2008 4:52:43 PM
there is some argument that this mess was caused by the fed trying to pop a bubble.
http://www.tcsdaily.com/article.aspx?id=101708A
Posted by: Jorge Landivar at Oct 19, 2008 7:54:37 AM
We can give you the best dofus gold and best service.
Posted by: dofus g at Jan 1, 2009 8:26:11 PM
Is it realistic?
Posted by: anna at May 13, 2009 2:03:18 AM
