OT - Stiglitz
I wish I could talk to one of these guys - I don't get it.
>>The first lesson is that markets are not self-correcting.
Really? What should we expect of markets and asset prices when the Fed allows money supply to collapse?
>>In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay.
Really? So do we want financial institutions that prepare for and lend as if there would be a collapse in money supply and thus asset prices? If so, count on much slower economic activity. Be careful what you ask for.
>>The third lesson is that Keynesian policies do work.
I agree on that one.
>>Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets.
Some truth there. The Fed should have been pushing for the Congress to grant it control of the new financial instruments (money market funds etc) and entities (investment banks). There is still the question if Congress would have granted the authority even if the Fed pressed - I doubt it. Congress does have some responsibility for not granting appropriate level of regulatory controls.
>>Private incentives matter, and if they are not well aligned with social returns, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation.
While true in theory, there was no reason for the private sector to anticipate that the Fed would drop the ball or that some new financial sector would be allowed to crash the economy - it misses the point of what caused the collapse.
Overall, my guess is that Stiglitz is just using the credit crisis to push his pet views.
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There are times when rules and precedents cannot be broken; others when they cannot be adhered to with safety. (Thomas Joplin)
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