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Department of "Huh?!" (Why Oh Why Can't We Have a Better Press Corps?) - Grasping Reality with Both Hands

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10/21/10 10:44 AM

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Grasping Reality with Both Hands The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, RealityBased, and Even-Handed Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.

Economics 210a Weblog Archives DeLong Hot on Google DeLong Hot on Google Blogsearch October 08, 2010

Department of "Huh?!" (Why Oh Why Can't We Have a Better Press Corps?) At the 2005 Jackson Hole conference that turned into Raghu Rajan (supported by Alan Blinder and Armenio Fraga) vs. the world, Raghu made two big points: 1. The past decades of financial deregulation had created a world much more vulnerable to financial crises than we recognized. 2. The big thing that needed to be done to guard against disaster was to insure that financiers had their personal fortunes on the line--that every decision maker have not just "skin in the game" but rather a spleen, a limb, a lung, and a heart in the game as well. Raghu was, it is very clear, very right about (1). I think it was also clear that he was very wrong about (2): Charles Prince and James Cayne and Richard Fuld had plenty of vital organs in the game. And it did not help. Criticizing Raghu, Larry Summers made some points that he had been making for in some cases decades: 1. That the dangers caused by increased financial sophistication, while real, were more than offset by the advantages in the mobilization of capital for investment. 2. That the first and most important line of defense against financial crises was and remained active economic management by central banks. http://delong.typepad.com/sdj/2010/10/department-of-huh-why-oh-why-cant-we-have-a-better-press-corps.html

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