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Assorted links
1. The economy: have we seen the worst?
2. Financial regulation as chess game.
3. Markets in everything yes progress is real.
Posted by Tyler Cowen on April 7, 2009 at 11:29 AM in Web/Tech | Permalink
Comments
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Posted by: kevin at Apr 7, 2009 12:26:09 PM
I came across this link at the freakonomics blog (http://freakonomics.blogs.nytimes.com/2009/04/06/freak-shots-hows-your-riot-insurance/) about terrorism and riot insurance being for sale in Nairobi, Kenya. I am aware that Nairobi has suffered from relatively frequent riots, led by students, slum dwellers, or supporters of opposition political parties, though I only know of the 1998 US embassy bombings, an attack in 2002, and a suicide bomber blowing himself up in 2007 during rush hour. I think that this is an excellent instance of the markets in everything outlook that you advocate here at Marginal Revolution. I am curious as to how this type of insurance would work, though. I see three main problems in insuring against riot and terrorist attacks. 1.) They are very, very rare events, with a low probability of affecting any individual, 2.) The number of people in Nairobi who would be so adversely affected by a terrorist attack or riot that it would justify their purchase of insurance is very small (also those who could afford to pay insurance premiums would be limited most likely to hotels, banks, and tourist destinations - the government would presumably self insure), 3.) The variance in potential damages is tremendous- The potential for incredibly high payouts led to the creation of the Terrorism Risk Insurance Act in the US, because without this according to State Farm "Terrorism is an uninsurable risk unless there are limits to protect against catastrophic terrorism exposure." (Quote from: http://www.statefarm.com/about/media/current/tria.asp)
Any insights on this matter would be greatly appreciated. I very much enjoy the blog and have become an avid, daily reader, though this is my first comment.
Posted by: Alex at Apr 7, 2009 12:37:56 PM
Addendum to last comment: I realize that this is an instance of catastrophic coverage which is how insurance is meant to be structured, yet despite this the market for this type of insurance should suffer from an adverse selection death spiral. There are numerous market failures with respect to information and determining the specific risk to an individual or business seems nearly impossible.
Posted by: Alex at Apr 7, 2009 12:41:31 PM
Really important sentence in the financial regulation post: "The three solutions to the S&L crisis—securitization, risk-based capital, and market value accounting—all are heavily implicated in the current financial crisis."
One wonders what our newest "solutions" of massive Fed intervention, devaluing the dollar, and explosive growth in government will blossom into.
Posted by: The Other Eric at Apr 7, 2009 2:09:05 PM
If Colombia ever straightens out its drug control problem, I have little doubt it would become the wealthiest country in Latin America. They are blessed with a lot of natural resources and the people there have an entrepreneurial spirit second only to the US (and perhaps Canada) in the Western hemisphere. Colombians also have never seemed to me to fully embrace a collectivist mentality that is so prevalent in the region, and most of the ones I've talked with in my travels there want a strong market economy with low taxes.
Posted by: Shaub at Apr 8, 2009 4:15:36 AM
"Third, and most importantly, we are due at some point for a bout of contractionary monetary policy."
If you look at the (St. Louis Fed) monetary aggregates, I think this concern (by the entire public) is overstated. Even though the monetary base is almost double what it was in January, 2007 (about $813 billion in Jan. 2007 versus about $1554 billion in Feb. 2009), this increase in the monetary base has NOT translated to a big increase in the M1 money supply (about $1374 billion in Jan. 2007 versus $1558 billion in Feb. 2009).
The obvious reason is that during that time the reserve ratio has skyrocketed (relative to the recent past.) Likely, in time, the reserve ratio will come back down, and I see no reason why the Fed shouldn't be able to ease the monetary base back down without largely affecting the broader monetary aggregates.
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