This morning, the Treasury announced yet another massive new spending program to buy AAA consumer loan securities. This is probably less expensive than any of the other programs so far rolled out; consumers with long, sterling credit histories are the type of people who ferociously guard those histories. Even if the downturn pushes some of them to the wall--and I assume it will--the securities in general should pay off. If it's structured right, this will essentially be the most extensive carry trade play in history.
But of course, many of the reporters at the press conference pressed Hank Paulson to admit that the bailout wasn't working, to explain why he can't seem to get it right. The reason he can't get it right, of course, is that no one understands what's going on well enough to guarantee the results of their activity. Paulson looks like he's flailing because every time the facts change, he changes his mind. And the facts are changing very, very fast.
The lack of consensus as to a program is actually kind of stunning. Usually in an economic policy debate, the wonks settle on a couple of fairly fleshed out proposals. Oh, sometimes they agree on one (trade); sometimes the number swells to three or four (taxes). But there's a pretty solid menu of policy choices from which the politicians can choose before adultering it with their special (interest group) sauce.
But the only consensus at this point is so broad as to be completely useless. Banks should deleverage. They should lend more to people with sound credit. The government should try to spur aggregate demand. Puppies should bark, and kittens should go "meow".
Since September, I've been to a hell of a lot of panels, discussions, and interviews about the crisis. Almost all of them feature prominent calls for tougher regulation by certified Very Smart Economists. When pressed upon the details of this regulation, however, they tend to get rather vague. "We need a stronger regulator". Okay, and what exactly should he be empowered to do? "The regulators need to watch the banks more closely." Okay, yes, but what will they be watching for? "The regulators need much more power to keep the banks from taking risk." Yes, yes, thank you, Dr. Insight, and what specifically is the regulator going to do with this power?
Further deponent sayeth not.
These are not journalists, mind you; these are PhD economists with a specialty in finance--the class of people whom we expect to regulate these banks. The further left they get, the more strident they are in calls for regulation. But they seem unable to come up with any actual, specific things that the regulators should do except . . . keep the banks from levering up to much and taking too much risk. How much, exactly, is too much? Why, enough that the banks start to fail, of course!
Similarly, there is broad agreement that the government should keep the good banks afloat and close the bad ones. How do we discover which are the bad ones and which are the good ones? What should be done about the various derivative asset classes that are in trouble? Um, well, we should take care of that problem, quick.
This is, in fact, the entirely appropriate response to a situation that has a the very least severely damaged most of the longstanding theories about this sort of crisis. Excessive certainty in the face of unknowns is politically attractive, but economically suicidal.
The Bush administration has long been criticized for sticking to its guns too long in Iraq, even when it became clear that what we were doing wasn't working. Paulson isn't making that mistake--and is instead being castigated for changing tactics to fit changing situations. Where did we get the idea that our regulators were supposed to be omniscient?
Never mind. I can't believe I asked that.
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Megan,
Check out the commentary by John Hussman that I quoted and linked to in this comment on the previous thread. Hussman has been ahead of the curve throughout this crisis, and, unlike most Ph.D. economists, he is also a portfolio manager, so he has a hands-on understanding of risk.
Good questions here... it seems to me that this problem calls for lots of creative subdivision. Anyone notice that Paulson this morning looked completely fried? I think I would force him to take a week off and just sleep, then come back for the last seven weeks. I doubt he has sufficient synapse bandwidth of any reliability to do anything productive at this point.
Too much of what is going on lately reminds me of youth soccer, all the kids flocking after the ball. Some people with some knowledge should just be sent off to the side with no day to day responsibilities to just focus on the regulatory part. Should some derivatives simply be forbidden because they are too complicated? Should government regulators have access to the algorithms used to calculate risk and have the option to reject those that are unrealistic? Do we need to restrict the ways these financial corporations are structured so that they can't take a good business down with a bad one? Do we need laws around executive compensation, dividends and so on such that the incentives are toward long-term growth, job creation, and adding real value to the economy rather than paper profits this quarter? These sound rhetorical perhaps and reek of bias but the point is to address these one needs to get off the roller coaster of what is going on day to day. You can't have people rethinking hospital policy while emotionally and intellectually involved with triage in the ER.
Ah yes, yet another in a long stream of posts about the inability of the regulatory community to regulate. Of course, no names are named.
Paul Volker is still alive; have you interviewed him? How about the general counsel for regulatory affairs of Citibank, Chase, B of A? Or Dean Baker, at CEPR? Or anyone at EPI?
Have you looked at the Federal Register for relevant rulemaking procedures, then reviewed the comments submitted, then followed up with people who seem smart?
How about some of the obvious rule changes -- like the Bush era rule change that allowed investment banks to leverage at 30+:1?
What are the names of former general counsels to the Federal Reserve and the Treasury? Surely you've checked with them.
nah, that's work. You're a blogger.
@Megan
"...no one understands what's going on well enough to guarantee the results of their activity."
Congratulations - You just stated, as have Ludig von Mises, F.A. Hayek, Murray Rothbard, and others before you, exactly why centrally-planned markets cannot work - Ever. There's no way any central authority can have all the information necessary at any given time to take an action and guarantee an outcome. Markets aren't made up of computers or robots where action "a" always results in condition "b". Markets are made up of people who change their minds on a dime and live their lives in a constant "gray area". Predicting their actions or reactions is akin to predicting the path of a tornado - You do so at your own peril.
If that's the case, and everyone knows it, then what's the best solution for government? Do nothing - It's really that simple. Let the market sort itself out. Will it be painful? Most assuredly - but that's the medicine for the sickness we allowed to permeate our economy and medicine always tastes bad.
Or we can keep printing money to the tune of trillions per month until the bottom finally gives way and the dollar collapses completely while we're left holding the bag.
In the last two years, everyone was laughing at those who predicted financial problems. My "name URL" is a link to a video of folks like Ben Stein and other financial geniuses poo-pooing and in some cases laughing at Peter Schiff as he explained *exactly* what was about to happen and why. Watch it and remember. Pay special attention near the end where these idiots give their "best stock to buy" tips for 2008 - It reads like a who's who of failure. All these people should be tarred and feathered. Ben Stein should be so ashamed that he locks himself away, dons a hairshirt, and flagellates his body twice daily.
Epic fail.
So, the phd economists are getting it wrong? Noooo say it ain't so...
In fact, Francis, yes, I have heard from folks at Citibank, Dean Baker, the FDIC, the Fed, most of the regulatory staff at Brookings, various other bankers you didn't name, etc., etc., etc. I'm a blogger who lives in Washington DC and has at least five panels a week with famous people on them to choose from. Your choice of people is both weird, and revealing; left wing think tanks with little financial services expertise, and banks lining up for a handout. There is a very broad swathe of actual academics out there with better credentials and fewer axes to grind, and the consensus among them is . . . nonexistant. Not from lack of goodwill, either--there is shockingly little sniping between right and left. Everyone that you would actually want to trust on the issue seems to appreciate the terrifyingly large possibility that they may be wrong.
For many years, I have believed that big = bad. I think that the largest corporations should be much, much smaller than they are now. One of the ways I would do this is by restricting their charters to the business for which they were founded. Maybe we need a progressive corporate tax, too.
The biggest problem of the auto makers is they are run by lawyers and bean counters, instead of by "car guys".
I recognize that, when this was first part of my philosophy, we weren't worried about foreign competition. But, I'm confident we could figure out how to compensate for that.
Keep them small and let them fail when they are dumb.
Megan, great response to Francis.
I'm sure that there are too many Big Banks, and too many bankers, and the financial industry is facing its own massive downsizing.
Please ask how much paper value has disappeared?
I doubt there will be a consensus, but a good data point is the Lehman windup, at about 20 cents per dollar nominal. So a derivative market of $100 tr might only be worth $20 tr -- who will eat the lost $80 tr? All the Big Banks.
THAT paper wealth is gone, and the need for finance sector jobs to slice, dice, sell, insure, rate ... and even analyze and write about the paper wealth. All gone.
Even if they get 'bailed out' to allow the few top fat cats to stay fat, the finance sector is hosed.
Please consider asking about the lack of need for finance jobs, just like the lack of need for new house construction.
You/they are all suffering from too much information. Things aren't as complicated as we like them to be. Part of the reason we find ourselves in these messes is that life is simpler (though maybe more chaotic) than we wish to think. If we'd just deal with things as they happened a bit more than trying to prevent the unpredictable, we'd adapt a lot better.
Nick: I think you're not giving Megan enough credit. I'm pretty sure that was part of the point of her post. Nobody knows what to do, so we can't expect regulators to get things right. She even ended her post asking the rhetorical question of where people got the idea that regulators know everything. She does, afterall, hold generally libertarian economic beliefs.
As to the stuff about Schiff's predictions... Well, I'm not at all convinced that he or the great sage Nouriel Roubini should get half the credit that they're getting right now. The reason? They both predicted a collapse of the dollar of a magnitude never seen before. That hasn't come to fruition at all. In fact, quite the opposite is occuring. Their entire theory as to what was going to cause the financial crisis is being disproven before our very eyes. So why should we believe what they say? They guessed the result right: mistrust in the financial sector leading to a significant drop in the stock market and the failure of banks. But if the bases for those predictions were flawed, aren't their suggested solutions to the problem also likely to be flawed?
Megan: Brad deLong may have the credibility to argue from a position of authority; you don't.
So what's the parameters of debate? Who's taking what position on changing capital requirements? On banking institutions having the authority to create special-purpose investment vehicles? On increasing transparency? Should we sharpen the definition of what is a "bank"? What might that include or exclude? What are the consequences of various institutions applying to be regulated under certain statutory authority?
What about collapsing multiple regulatory agencies into a single one? Requiring that "banks" change the way they post profits and pay bonuses on certain transactions? Requiring all financial instruments bought and sold by banks to be traded over exchanges?
When a bank sets up a trust to purchase mortgages and sell securities, what is the scope of the fiduciary obligations of the trustee? If the trustee breaches, should the owners of the securities be able to pursue the bank, or does the trust stand alone?
Establishing correct incentives for rating agencies is difficult; they will tend to defer to whoever is paying them. What is the scope of debate on changing the rating agency process.
And a huge issue is federalism. To what extent should the federal government displace state regulation of insurers / mortgage originators / mortgage brokers / single-state banks / multi-state banks / financial trusts / rating agencies?
Have you considered that specialists in this area find it difficult to talk to you about specific proposals because you lack the training to understand them?
How about limiting the securization of mortgages?
Back in September, you wrote:
Having read Liar's Poker (based upon your recomendation), I learned one little tidbit. Mortgage securization, when it was invented, was illegal in forty-seven states. It took federal law passed in the 80s to override the state laws and make it legal throughout the United States.
Based on current experience, I'd say that was a major mistake.
I’m not sure what there is to understand that isn’t very understandable, Megan, but I’ll try. I’ll make it as simple as I can, and I’ll try to use small words as much as possible.
There’s a thing called wealth, you can think of it as a Platonic ideal if you like. It’s the real, true ‘value’ of all the stuff we have, our toys, our homes, our collective physical plant. Then there’s what all this collective wealth is currently valued at. We can thik of it as ‘the state of the economy’ but let’s call it ‘price.’ Sometimes, the price gets out of whack with the true value of the wealth. Usually ‘out of whack’ means ‘too high,’ and we call that a bubble. Things are fun for a while, but then, for any one of a number of reasons, the bubble pops, and the price moves quickly toward the true value of wealth. For some reason, it’s easy to understand when we’re talking about tech stocks, or tulip bulbs, but when we’re talking about the entire economy, about everything, people get all confused and start talking instead about one or more of the various ways in which money itself is a commodity instead as the medium of exchange, of measurement of wealth. And this is because people can’t help but be suspicious that it’s this conflation of the uses of money that must have something to do with the crisis at hand. And it does, but that’s all to do with the how, not the what or why.
So when the entire economy suffers the bursting of a bubble, it’s much harder for people to shrug it off, because it can seem as though the problem, the crisis, is everywhere, all at once. Especially when the people hurting the most have a lot of power. Even though the crisis isn’t everywhere, at least not yet.
So what has to happen is that, like a stock price finding it’s way back to it’s P/E-based trend line, the price has to, eventually, somehow, find it’s way back to being (close to) a true representation of the value of our collective wealth. But this would involve a recession, or possibly worse. So maybe we can avoid that. Maybe we can move the price sideways for a while, just have low or zero growth for a few years. Maybe we can engineer a way to maximize our time above the trendline of the economy. Well, I suppose that’s a worthy goal, but it’s hard. If that’s what you mean by people not knowing what’s going on, Megan, then maybe you’re right. So maybe it’s better just to have the recession, and avoid any more dislocations caused by government policies. But that’s difficult to swallow politically. After all, we want our healthy economy, and we want it now. And even though that’s how we got into this mess, well, it might just work out for all the politicians and bankers to act like they don’t understand things like the fact that taking on bad loans, and massively leveraging various financial instruments (but that’s ok, because we have risk all figured out!) greatly increased their vulnerability to the instability caused by maturity transformation (ooh, big words, sorry). It might be a good idea to act as though the idea that borrowing from future demand, or, if you like, creating demand ex nihilo (with a massive assumption of risk) by easing restrictions on lending overinflates the money supply, making our economy even more consumption-driven (that is, bidding up the prices of things whose value is not increasing, and then using the money from that to support the economy at large), is not at all unsustainable. Damn, I used some more big words. Again, I apologize.
That’s about it, really. Exactly how this is all going to unwind maybe isn’t clear, but it doesn’t matter. Banks are going to suffer, and they need to, and they should, and giving them money now just means we’ll have the recession later, unless we somehow luck into a long period of very slow growth. But we probably need a recession. We should just have it now. There’s no reason to assume that it will be THAT bad, except to extort money from congressional morons who very much want to think we can continue, indefinitely, to have something for nothing.
PhDs don't know the correct time and temperature for the roll-out of an economic rescue. That's bad. Paulson's flailing around like a drowning man. That's good. The only certainty is uncertainty. What? Have you tried to reconcile the 3-4 conflicting statements in this single post?
It will be hilarious when Big Daddy Government does what everyone knows has to be done -- tightens up banking rules and spends a couple trillion dollars -- and you righties will have nothing to do but spin counterfactuals about the way it might have been had anyone listened. By then, fortunately, the adults will fully be in control and we'll be on our way to recovery.
btw: Paul Volker... lefty?
Interestingly, Francis, they are also apparently unable to explain it to any of the PhDs there. Or, by report, to each other. Perhaps you are the only person who really understands what is going on. But "anonymous blog commenter" is several rungs below "economic policy journalist" in terms of being able to argue from authority. But I'm not arguing from authority. I am reporting what I have encountered. Those are not the same things. The same observation is readily available to anyone who goes out and watches the same panels, etc, that I have.
Your regurgitation of the FT op-ed page is indeed useful. But if you have been able to find a consensus on the answer to any of those questions, I suggest that it is probably because you have excluded a large number of highly qualified analysts from your sample.
@autolycus
Hmph...She may have meant that, but it goes 180 out of what she's been saying. To paraphrase many of her ramblings of the last several weeks: "Someone (a central authority) has to do *something* (any action that may appear to work) because we can't let the financial sector just die..." That may very well be her view, but it's not a libertarian view - notwithstanding everything recently published by CATO.
You're right, the dollar hasn't collapsed. But in the immortal words of Curly Washburn - "Day ain't over yet."
Please elaborate on how Schiff's "...theory as to what was going to cause the financial crisis is being disproven before our very eyes."
Anybody who is confident that Brad or somebody else has a big picture narrative of what happened and how to fix it in a handwaving-free fashion should post a link to the appropriate paper/essay/post/video so we can all sleep better tonight after forwarding it to the O-Team.
"It's going to get worse before it gets better" doesn't count. Nor does "Paulson is an idiot", "Armageddon", "stimulus", "tax cuts", "Main Street", "cut their pay", "ban X", or "mandate Y", "nationalize Z".
Let me here insert the old story about the elephant and the blind men, each touching a different body part. One has the tusk, another the ear, another the tail. You get the picture, even if they never can.
For now I'm going to hang on to my favorite comforting cliches just to keep my blood pressure down.
@eriver
You may want to get off of the holier than thou podium before your nose starts to bleed.
On a more substantive note...no, there is not such a thing as a 'real true value' for things that is different than price.
Price *exactly* describes value and it varies constantly. Every buyer values a thing (whether that is a good or a service) differently based on his or her circumstance. Markets are a convenience that allow future buyers and sellers to *guess* at what price they can successfully transact for a good or service in the future but cannot guarantee it. Markets are only correct 'in general' not in specific. E.g. the market price of a pound of Tofu might be $10 in general but, as I am not a fan I may value it at no more than $4. A connoisseur may value the same pound at $20. What is the 'real true value', $10, $4, or $20? The valuation game can go on indefinitely with each permutation of buyer and seller circumstance, and in fact it does, which is why prices change all the time. That living record of past successful transaction prices is called the market. As far as a single 'real true value'...there is not one.
I suggest that you firm up your grasp of economic basics before torturing the language with any more ill-conceived sentences.
All the best,
j
...and now I should turn in my own podium. I apologize for the snarky tone of my last post.
Anybody who is confident that Brad or somebody else has a big picture narrative of what happened and how to fix it in a handwaving-free fashion should post a link to the appropriate paper/essay/post/video so we can all sleep better tonight after forwarding it to the O-Team.
Bill Gross is said to know something about finance, and has written exactly something along these lines on Pimco's web site. You could go read that. The twin notions that this crisis was unpredictable and is irreversible are equally false.
Maybe maybe in reaction to the people who told us that markets were omniscient, self-correcting, and didn't need anyone looking over their shoulders?
Megan:
Lack of consensus DOES NOT EQUAL lack of plan. Yet your post conflates the two.
You do an admirable job of sneering at a bunch of people who have a great deal more education than you do, and a p*ss-poor job of educating your readers as to the scope of the debate.
You appear to show no understanding of administrative law. Well-crafted regulations do not require omniscience either to draft or to implement. Instead, good regulations force the capture of externalities. But in any regulated industry, there tend to be tremendous tensions between the costs incurred by the regulated entity in generating the information needed to demonstrate compliance, plus the costs of actual compliance, on the one hand, versus the costs incurred by society by poor compliance and non-compliance.
How are these tensions being sorted out? What are the possible alternative regulatory futures of the financial industry? Once again, what are the parameters of the debate?
If you have a clue, you've hidden it well.
Okay, so we don't have any reason to believe that Paulson's previous actions have actually helped things, which is why he keeps changing his mind. This makes sense because he's not omniscient, and doesn't really understand the situation.
However, the one thing we *do* know for sure is that his actions have bad side effects: mounting national debt and inflation.
So, given that we have no indication that his constant game of catch-up is actually improving anything, but absolute certainty that it has deleterious effects, isn't the proper course of action to just let the situation play out without (possibly catastrophic) interference?
maybe more regulation ISN'T the answer...
"This morning, the Treasury announced yet another massive new spending program to buy AAA consumer loan securities. "
Ah. Just like all those AAA mortgage-backed securities that turned out to be crap.
Unless the problem of rating agency liars has been solved, this is a recipe for a world of hurt.
I can't see any reason Citi should be allowed to pay dividends, I can't see why bonuses should be paid, I can't see why any salary above that of the President of the US should not be required to go into escrow until all loans are paid back. Why am I a dummy?
Lee Iacocca gave up a $1 million per year retirement package from Ford, took a $1 per year salary and walked out on the assembly line, telling workers "I've got plenty of jobs for you at $17 an hour, I've got none at $19 an hour" -- the workers took the pay cut. Why can't that happen again?
The further left they get, the more strident they are in calls for regulation. But they seem unable to come up with any actual, specific things that the regulators should do except . . . keep the banks from levering up to much and taking too much risk.
I call this "Dean Baker syndrome". It's the act of saying, over and over again in a weary, peevish voice, that everyone is WRONG because they AREN'T SMART ENOUGH and if only they were SMART like me, Dean Baker, they would KNOW that MUCH MORE REGULATION is needed NOW... but somehow the specific nuts and bolts recommendations seem to not actually ever quite get mentioned. Maybe because only Dean Baker is smart enough to understand them?
How that guy stays in the conversation is beyond me, but I digress.
Francis, this sort of vague pontificating is freshman term paper stuff. All of your comments thus far are trivially true, and also, not germane to the current debate. If you think that the compliance costs are the central worry of economists right now . . . well, I am certainly curious as to where you got that notion.
The central problem of the regulators right now is first, how to rebuild systemic-level functioning, and second, how to redesign that system in order to prevent this sort of thing from happening again. No one who is actually qualified to opine, as far as I can tell, has any specific plan to do this upon which they would place a higher than 25% probability of actually working. The people who are extremely confident are the wingnuts to whom it is unlikely that any sensible policymaker would ever listen (for which I, for one, humbly thank God every day). They are quite safe in predicting the efficacy of whatever scheme they are promoting, because there is a 0% chance that any of them will have to defend the results of their theory.
Lack of consensus DOES NOT EQUAL lack of plan. Yet your post conflates the two.
You're right. Instead, lack of consensus equates to a multiplicity of inherently conflicting plans.
No one who is actually qualified to opine, as far as I can tell, has any specific plan to do this upon which they would place a higher than 25% probability of actually working.
Given that, what's wrong with adopting Hippocrates' advice: First, do no harm.
Does anyone assert that the current approach is doing no harm?
Paulson shouldn't be criticized for "sticking to his guns" -- in fact he should be criticized for NOT "sticking to his guns." It's the LAST thing he's done up until now, after the economy has been totally flushed down the toilet. He spent the last year shifting the blame and the responsibility on the Fed citing "liquidity problems" instead of taking swift action to resolve the problems caused by sub-prime lending that drained our financial system of capital. He didn't "stick to his guns" after Ben Bernanke finally gave the Treasury a piece of his mind for avoiding the issue and making everything go from bad to worse, and made things even worse by acting erratically since August. Given the massive fallout of the sub-prime crisis, the $700 billion bailout was too little, too late... he better "stick to his guns" now, or we'll never dig ourselves out of this hole that we've fallen into.
waiting patiently for Francis to pop up again. hilarious.
Nobody knows nuthin'. Of course, all conceits aside, this is the default position with regard to economics, when speaking of current conditions. Somewhere, Hayek is laughing. Bastard.
Freshmen level stuff? What have you written that's more substantive?
Look, it's clear as day that you're a lightweight par extraordinaire, but a little effort on your part wouldn't hurt.
First, you could identify the players.
Second, you could discuss the various proposals on the table.
Third, you could recognize that there's a rather substantial difference between managing the deflation of the current balloon and establishing a long-term regulatory regime that works better than what we just went through.
Nah, you'd rather claim you have super-secret inside knowledge that effective regulation is impossible. Curiously, that super-secret knowledge just happens to conform with your political biases.
Francis, you would have had to regulate congress, sleazy lenders, people who take out mortgages they cannot afford and bankers who make mistakes and take on too much risk to have stopped this.
Here's a little something about regulation that you economy folks might want to think about.
Once upon a time a European company got a glider licensed in Germany. Because Germany was a member of JARS, a joint regulatory body issuing/ controlling airworthiness certicates, attaining a cert in ANY member country was a cert in EVERY member company. To save costs, each member state had agreed to both reciprocity and to a minimum level of testing and design review. However, each state was free to establish its own particular protocol within those broad limits. As a result, no two gliders from any two companies got exactly the same level or scope of checkout. The US was also a JARS signatory, so they could sell them over here, and they did, and then one fine day one of them went into a spin . . . and would not come out.
The energy absorbed in crushing the front cockpit and killing the seven months pregnant female in the front seat saved the life of the instructor in the back seat.
The flight manual had a spin recovery procedure, which the instructor learned the hard way would not work. Based upon the design and the flight testing, the flight manual also had a spin envelope, outside of which the glider was supposedly not capable of entering a spin. That's what the spin weights were for. To get the center of gravity into the spin envelope for spin recovery training flights you put the weights on.
Fatalities draw attention. US test pilots worked out the glider. It would obviously spin without the weights attached . . . that's one reason why she died . . . but US-level flight testing revealed not only that it would spin with or without the weights, and also solo (one pilot aboard) or dual (two aboard), but also that the published spin recovery procedure would actually only recover the glider in narrow set of conditions.
Lemme see here . . . we got these AAA rated bonds (JARS, anyone?) . . . based upon mortgages issued in a variety of states (differing member state protocols?) . . . based upon a variety of different borrowers of unknown credit ratings?
So if your company buys these AAA bonds (a glider?) without seeing the underlying basis for the AAA rating, or without being able to examine the underlying basis for the bonds . . . discuss among yourselves.
This is the first time I've read McArdle's blog and comments.
I guess I'm slow, being an old guy, retired from working in business these past thirty years but it took me a couple reads to make sense of the column and many of the comments.
Here's my takeaway. Megan, by attending lots of panels of economic experts, opines that nobody has a plan which includes specifics on solving the long-term issues of the current meltdown.
Okay. No surprising insights there. Economists differ in their philosophies which underpin their particular application of theory. Megan apparently expects economists to have those plans since economists helped create the mess using fanciful algorithmic risk models that apparently ignored the greed factor in human behavior.
Given the ability to "game" the financial system to their own personal benefit, thanks to their hired help in the political system, the bankers, hedge fund principals, brokers, et.al. did so. They got what they paid for, so the price/value equation worked as planned.
I fully expect that, once all the gyrations of taxpayers' bailing out those who caused the mess are over, the game will resume with slightly improved refereeing until the next set of swindlers retake the political system in the name of "free market/Ayn Rand" theories. Like a "free" press, a "free" market is great is you own one.
I've yet to hear of a more responsive regulatory system for complex, quick-changing markets than allowing businesses and individuals that take excessive risks to actually fail. Even if you could regulate a market into complete safety (and you can't), you'd throttle it to death long before that receding horizon could be won.
And suggesting that an economist, or group of economists, can suggest federally enforced (and undoubtedly unconstitutional) regulations that will make the market "safe" invites the same brand of moral hazard that added significant fuel the current meltdown.