Wanted: Finance Industry A Team
WANTED: FINANCE INDUSTRY A TEAM....One of the things that makes our current financial crisis even scarier than it might otherwise be (at least to me) is that no one really, truly, seems to be entirely sure of what's going on. Even genuine experts appear to be sort of baffled by the whole thing though that hasn't stopped them from producing hundreds of different theories. Ezra Klein points out one of the causes of this problem, which has been at the back of my mind as well:
One sidenote of the past few months is that folks turned to economists when what they needed were finance experts. But there are relatively few finance experts who aren't affiliated with financial institutions, and so much of their commentary is tainted.
....Asking folks who have a general education in matters of macroeconomy to evince a complete knowledge of opaque financial instruments developed in the past few years is a bit odd. But asking the folks who developed and traded those instruments to give unbiased commentary on them is little better. It's a weird situation, and it's why, I'd argue, you've had a lot more commentary on things like the bailout bill, which are fairly general in nature and can be understood using tools from traditional economics, than the specifics of the financial crisis.
I second that motion. More finance experts, please. And mortgage and securitization experts. And ratings agency experts. And central banking experts. All stirred together with a bunch of top notch macroeconomists. Unfortunately, I suppose we'd probably all have to chip in and guarantee these guys $10 million bonuses to do real analysis for us, wouldn't we? Maybe George Soros could bankroll them.
UPDATE: Speaking of finance analysis, I wrote yesterday about a Fed paper suggesting that there was, in reality, no credit crisis at all. In fact, banks are lending like crazy! I was skeptical, but said, "Even if it turns out to be wrong, reading the explanation of why it's wrong should be instructive."
Mark Thoma and friends oblige with an explanation here. It's not conclusive, I think, but it certainly suggests that the original paper I linked to was woefully simplistic.