Today in Big Think's Month of Going Mental:
As the S.E.C. accuses Goldman Sachs of securities fraud, we revisit our series on the causes of the financial meltdown—from the academy, to the media, to the big banks themselves.
Barney Frank thinks no federal funds can go to keep institutions in business. His bill, already passed by Congress, seeks to make creditors very, very nervous.
The blogger addresses Wessel's video on the media's role in the economic crisis. Wessel: "I think one of the lessons I learned is that if things are going fine and 9 out of 10 experts say that everything’s going to be okay, and one says that we’re cruising for a bruising that our coverage should not be 90% positive and 10% negative. We really have to listen harder to that 10%. And sometimes the way you find those 10%, the way you get a critical read on their views, is to read what they’re blogging and what other bloggers say on them. So, I think it played a role and I think it well play a much bigger role in the future."
A link to a paper by Arnold Kling, Economics Professor at George Mason University and former employee of both Freddie Mac and the Federal Reserve.
Bloomberg has already declared Bernanke a winner. But the numbers say he's not a sure thing. Is Bloomberg engaging in Bernanke Boosterism?
"Wessel argues that: 'One thing is there was a failure of academic economics here. Too many macro-economists underplayed the importance of finance and of financial institutions and their understanding of the world.' I see his point, which is that academics ignored the buildup to the sub-prime fiasco. But once the crisis broke the opposite problem occurred. Almost all macroeconomists blamed the recession on the financial crisis. They should have had the courage to follow their own models, which tell us that demand-side recessions are caused by overly tight monetary policy."
"At the end of 2007 I was on the NPR show On the Media. I complained that the media did not give enough attention to economists who saw the housing bubble and the recession that would be caused by its collapse. David Wessel followed me and commented that i was just upset that the media didn't rely on more economists who agreed with me. As I pointed out to him later, my complaint was that the media did not give enough attention to economists who were right. He now seems to largely agree with me on this point, but I am still not satisfied."
"Of course Bernanke and everyone else who was taken seriously at the Fed were wrong that a housing bubble wouldn't be that big of a deal. But I think Wessel's point about what the Fed learned form the tech bubble misses something. I believe it goes beyond the Fed's observation that the tech bubble did not causing much lasting economic destruction."
Free Exchange takes on Scott Sumner's defense of the Chinese government's management of the renminbi against the dollar.
"Consider the trade-off Mr Wessel presents here. Tighten too early and you get a relapse into recession. Tighten too late and you get "an outbreak of inflation greater than [Ben Bernanke] thinks is prudent". Scary stuff! The costs are not symmetrically distributed, in other words. And yet, the FOMC appears to be much more worried about the threat of inflation than of relapse into recession. This makes no sense at all, and yet very smart people, like Mr Wessel, cast this choice as if it were the most difficult thing in the world to have to decide."
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