me: >>> this ignores the role of external costs: when Lehman Brothers bit the >>> big one, it seems to have caused and instant deepening of the world >>> financial crisis. Or maybe that's a good thing?
David B. Shemano wrote: > Because of the incredible complexity of the data, we can never know with > certainty why the stock market and/or the economy did anything, thereby > permitting economists and others to spend careers arguing with each other > explaining historical data, In my humble opinion, the stock market crashed > and the economy sank not because of what happened on September 13 and 14, > 2008, but because of the misallocation of resources that occurred in > 2003-2007.< Ex post facto explanations of stock-market craziness is a mug's game, but both of these views can be true. It's true that US markets massively misallocated resources into a gigantic housing bubble, but there were also massive external effects. The rise of such companies as Lehman helped other companies rise -- just as its fall undermined financial markets. In banking, the external effects are called the "contagion effect." The same kind of thing applies to any sectors of the economy that regulators allow to be heavily leveraged: when faith in one company crashes, faith in others collapses. And if banking and finance run on any fuel besides greed and money, it's faith. >Bubbles always pop, which means that the resulitng mess is not proximately >caused by whatever happened to be the needle, but what caused the bubble to >expand in the first place.< Right. A.G. and the deregulators (hey! sounds like a rock band!) should not have allowed the Big Bubble to blow up so large in the first place. >Interestingly, Lehman filed bankruptcy on September 15 and AIG was saved on >September 16. Were subsequent events caused by the inaction re Lehman or the >action re AIG? Did subsequent events even have anything to do with the >government's decisions re Lehman or AIG? Since there is no real way to >empirically answer the question, we all will presumably answer!< Just like the failure of Lehman, the saving of AIG (which is just another kind of failure) was a sign that the U.S. financial system was in serious deep doo-doo. It's quite possible that _both_ of these events caused the stock-market collapses and gyrations along with the other financial craziness. The saving of AIG indicated that Paulson and his boys were going to "do something" but the fact that they had to do something was very scary, encouraging the flight to quality. (My understanding of why Paulson _et al_ saved AIG was to keep Chinese investors happy.) On another topic, I hear Will Wilkerson (sp?) of the "libertarian" Cato Institute talking about Obama's proposed stimulus package. Strangely, his analysis was entirely Keynesian, avoiding Monetarist and "Austrian" non-verities. (He advocated a temporary suspension of payroll taxes.) Is this theoretical flexibility? or opportunism? If BHO cuts payroll taxes, will WW then turn around and argue that OASI is going broke because it doesn't have enough revenues? -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
