Boy, this is a pretty salty crowd tonight, and a very forgetful one, at that. For an excellent analysis of governmental debt, you might try reading this article.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/03/AR2009030303321.html
For those of you who seem to have forgotten the REAL cause of our problems, which is miscalculated derivative risk, you might read this: the story of the implementation of David X. Li’s radical risk management approach to derivative risk management.
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
And for those of you who want to understand the the flaw in Li’s Bell shaped Gaussian copula riskmetrics, and why “catastrophic tails” invalidate Bell curve riskmetrics, you might read this book:
Benoit Mandelbrot: The Misbehavior of Markets.
You all want to point fingers and snivel about one politician or another, but the damage was done far before any politicial, or the Fed, or anyone outside the inner sanctum of derivitive theory knew the scope of Li’s formula’s and the uniform implementation of those theories as they related to securitization of CDO’s, credit default swaps and risk.
It’s unfortunate when this board haggles over politics when there is little understanding of what REALLY happened. Arm yourself with some knowledge and then argue the salient point rather than spew partisan blather one way or another. Very few of the above posts are even germane to our current dilemma…instead you argue the symptoms of the problems. But the cause is well understood by those who understand economics…unfortunately we find ourselves in a liquidity trap that offers few alternatives for recovery, save a bit of luck.
Read todays blog from Nobel prize winner Paul krugsman’s blog, then begin the refutation of riskmetrics, liquidity traps, and the pseudo economic views of the Austrian School of Economics:
“My view, which I thought was pretty clear, is that the liquidity trap is real: no matter how much the Fed increases the monetary base, it has no effect, because it just substitutes one zero-interest asset for another. If the Fed could credibly commit to inflation at rates higher than the 2-ish percent target it’s already believed to have, that would be effective. But right now I don’t see that as a realistic option, hence the emphasis on fiscal policy and bank recapitalization.”
