61–70 of 72 posts
Let's not forget that Krugman was one of the chief advocates of the housing bubble (before it popped) and that his "berating of the raters" should begin with an apology. http://blog.mises.org/10153/krugman-did-cause-the-housing-bu...
Let's not forget that Krugman was one of the chief advocates of the housing bubble (before it popped) and that his "berating of the raters" should begin with an apology. http://blog.mises.org/10153/krugman-did-cause-the-housing-bu...
This 2005 example of libertarian economic thought is particularly ironic, arguing that measures of inflation like CPI give too much weight to housing and car prices while an adjacent advert promotes a book explaining how the crisis was caused by too much easy money: http://www.cato.org/pub_display.php?pub_id=3752
Other sparkling jewels of economic wisdom include his prediction at the beginning of 2008 that recession was a non-issue, or his comments from earlier in the decade (when the Fed had raised rates a bit) that the nation would achieve substantial long term benefits from the 'glorious housing boom' created by previously low rates, which had allowed many refinancers to invest and consume more.
Physician, heal thyself.
Earlier quoted context omitted.
Now I don't understand what your motive is - but your quote is taken waaay out of context... Original quote: "The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on…
The point of that editorial is that business investment won't end the recession, so the only hope is housing. "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. " Krugman is just repeating the same "insufficient demand" theory of recessions that Keynesian economists are using today.
I appreciate that Austrian economists dislike the idea of stimulating demand through looser monetary or fiscal policy, but they're not exactly famous for demanding greater restraint during good times, are they? I don't recall any of them screaming in horror when the Dow was at 14k.
It seems to me that rating agencies should be paid by the institutional investors that buy the bonds, not the banks trying to sell them. That might help the incentives line up better. Am I crazy? Nobody suggests this, and I think I'm missing something crucial here.
Dean Baker has been suggesting that either the exchange or the SEC take over selection of the rating agency for over a year now.
When people say they will act one way and have financial incentives to act another, expect them to follow the financial incentives. Appropriate regulation can help for a bit. But unfortunately the regulated party has incentives to provide incentives (such as contributions to political campaigns) to gain control of the regulations. This leads to regulatory capture that then renders the regulations ineffective. In a pe…
Effective regulations are those regulations that change the balance of incentives to remove moral hazards and internalize externalities.
The properties of ideal entities aren't much use in a universe where nothing approximating such entities actually exists.
Note that Fannie and Freddie actually lied about the mortgages pools that they constructed (said mortgages contained more subprime than they admitted). This not only defrauded the folks who bought those pools, it also made the entire mortgage market look safer than it actually was.
Note that it was regulators who pushed subprime mortgages and insurance for such securities (so they could justify "encouraging" banks to hold them as regulated assets). Said regulators also gave ratings monopoly AND told banks that they had to hold Fannie and Freddie stock, which put many of them into technical default when Fannie and Freddie went down.
At best, regulation is systemic risk. Often, it's corruption backed by a threat of violence.
Earlier quoted context omitted.
Rating agencies seem like an absurd idea altogether. Have they never heard of the perils of having a single point of failure? Much less a single point of failure that's a government-created oligopoly? Yikes. It seems that businesses are just running on an outdated model developed when information sharing was a lot harder, so only condensed forms like quarterly reports and press releases were feasible. But now that in…
Well, it's more subtle than that. The big ratings agencies are Fitch, S&P and Moody's. They are competitors for the business of issuers. So each one is incentivized to rate higher than the others, without blatantly being seen to take the piss. The problem with complete openness is that it encourages short-termism. You see this even with quarterly results, companies that have recently gone public (and thus have minima…
But how does this scheme encourage front-running?
Let's not forget that Krugman was one of the chief advocates of the housing bubble (before it popped) and that his "berating of the raters" should begin with an apology. http://blog.mises.org/10153/krugman-did-cause-the-housing-bu...
That is bunk. That blog article is pulling a few quotes from 2001. In 2001 we had a recession with high unemployment, and lowering interest rates was sound advice. If you find some quotes from 2004 or beyond where Krugman actually advocates policies that would encourage a housing bubble, then you may have a case.
The burden is, in fact, on you to find a link from circa 2004-6 by Krugman calling for restraint of the bubble whose inflation he advocated so fiercely. See above for a more detailed exposition of this point.
Anyways, here is another article from 2002. I don't know how you can get any more incriminating:
Quoting Krugman: To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...
BTW, asking for a quote from 2004 calling for the creation of a housing bubble is a bit ridiculous: by then the housing bubble was in full bloom.
http://upload.wikimedia.org/wikipedia/en/c/c1/Median_and_Ave...
As you can see, late 2002 (when the above article was written) would have been just at the beginning of the disaster.
(sorry for the delayed reply; at work all day.)
Let's not forget that Krugman was one of the chief advocates of the housing bubble (before it popped) and that his "berating of the raters" should begin with an apology. http://blog.mises.org/10153/krugman-did-cause-the-housing-bu...
I'm not a big fan of Krugman, but let's also not forget that we were in a recession at the time of those remarks; when Krugman was saying the Fed should raise interest rates a few years later, and taht the US was addicted to Chinese treasury purchases, libertarians scoffed and called him an alarmist. This 2005 example of libertarian economic thought is particularly ironic, arguing that measures of inflation like CPI…
Please don't take the link as a blanket endorsement of libertarianism; it was just the first link that came up as a result of my google search. I remembered reading up on Krugman's predictive failures many months ago ...
Krugman stopped being an economist a long time ago and is now a political hack - regardless of whether or not he has a point in this particular instance. I imagine that you didn't need Krugman to tell you that the raters were issuing ridiculous ratings ...
Let's not forget that Krugman was one of the chief advocates of the housing bubble (before it popped) and that his "berating of the raters" should begin with an apology. http://blog.mises.org/10153/krugman-did-cause-the-housing-bu...
those quotes are all from 2001. that's more than just a little "before it popped". this criticism is worthless.
1. Consider: who would actually be so buffoonish as to call for the creation of a financial bubble at the peak moment before said bubble was about to burst - particularly when the bubble had reached an historical scale. Krugman is silly, but not that silly.
2. As it turns out, he was calling for the bubble at that crucial moment in history which we now recognize as the actual creation of the bubble. http://upload.wikimedia.org/wikipedia/en/c/c1/Median_and_Ave...
Let me spell it out for you: he got what he asked for, when he asked for it.
3. Given that he called for the creation of a bubble, I am willing to assume that perhaps he didn't mean for it to get so over-inflated. But that puts the burden on you to find an article circa 2004 for him saying: stop, I meant only inflate it a little ...
Of course he did not call for the creation of the bubble just before it popped. In fact, it is much worse: he called for the inflation of the bubble just as it was getting started.
We all know how that ended ...
