Resolution Authority
This is a very short article on the “systemic resolution authority.” It’s based on testimony I gave to the House Financial Services committee. No surprise, I’m not a big fan of unlimited power and budgets and no rules.
This is a very short article on the “systemic resolution authority.” It’s based on testimony I gave to the House Financial Services committee. No surprise, I’m not a big fan of unlimited power and budgets and no rules.
Portfolio Formation in the new Financial World
October 6, 8 2009. Slides for a talk on new ideas in portfolio theory.
October 6, 8 2009. Slides for a talk on new ideas in portfolio theory.
Lehman and the Financial Crisis
Wall Street Journal oped with Luigi Zingales. Letting Lehman fail was not the central cause of the financial crisis.
Wall Street Journal oped with Luigi Zingales. Letting Lehman fail was not the central cause of the financial crisis.
Why did Paul Krugman get it so wrong?
(ms-word version). Later published in Economic Affairs 31:36-40 (2011) (local pdf). A response to Paul’s New York Times Magazine article. Bloomberg TV Video interview on the post. David Levine wrote a good open letter in a similar spirit. Note: This is just a response to Krugman’s article. A number of people have criticized me for not explaining the alternative, i.e. just what does modern macro and finance have to say about the crisis, exactly what do good models of fiscal stimulus predict, and so forth. Sorry, there’s plenty to say, but that’s a much bigger essay. See the rest of this webpage! Here's the most delicious quote, I think:
"If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he essentially borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.
If you believe the Keynesian argument for stimulus, you don’t care how the money is spent. All this puffery about “infrastructure,” monitoring, wise investment, jobs “created” and so on is pointless. Keynes thought the government should pay people to dig ditches and fill them up.
If you believe in Keynesian stimulus, you don’t even care if the government spending money is stolen. Actually, that would be better. Thieves have notoriously high propensities to consume."
(ms-word version). Later published in Economic Affairs 31:36-40 (2011) (local pdf). A response to Paul’s New York Times Magazine article. Bloomberg TV Video interview on the post. David Levine wrote a good open letter in a similar spirit. Note: This is just a response to Krugman’s article. A number of people have criticized me for not explaining the alternative, i.e. just what does modern macro and finance have to say about the crisis, exactly what do good models of fiscal stimulus predict, and so forth. Sorry, there’s plenty to say, but that’s a much bigger essay. See the rest of this webpage! Here's the most delicious quote, I think:
"If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he essentially borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.
If you believe the Keynesian argument for stimulus, you don’t care how the money is spent. All this puffery about “infrastructure,” monitoring, wise investment, jobs “created” and so on is pointless. Keynes thought the government should pay people to dig ditches and fill them up.
If you believe in Keynesian stimulus, you don’t even care if the government spending money is stolen. Actually, that would be better. Thieves have notoriously high propensities to consume."
What to do about Preexisting Conditions
Oped for The Wall Street Journal. Health Status insurance op-ed for Investors Business Daily (local link). April 2 2009. These pieces describe my ideas on how free market health insurance can solve the portability problem and thus let us have a competitive system: People who lose their jobs lose health insurance, often with catastrophic results. Two ways to put the basic idea: 1. You can buy “premium increase insurance” so that if you get sick you can afford higher premiums. 2. You can buy the right to buy health insurance in the future, even if you get sick in the meantime.
Oped for The Wall Street Journal. Health Status insurance op-ed for Investors Business Daily (local link). April 2 2009. These pieces describe my ideas on how free market health insurance can solve the portability problem and thus let us have a competitive system: People who lose their jobs lose health insurance, often with catastrophic results. Two ways to put the basic idea: 1. You can buy “premium increase insurance” so that if you get sick you can afford higher premiums. 2. You can buy the right to buy health insurance in the future, even if you get sick in the meantime.
Financial lessons of the great depression
A panel discussion at the Council on Foreign Relations.
A panel discussion at the Council on Foreign Relations.
Asset pricing after the crash
This is a piece based on a panel discussion titled “Rethinking asset pricing” at the Spring 2009 NBER Asset Pricing meeting. It includes skeptical views on just how important credit constraints and liquidity really are. Liquidity is the frosting on the cake of finance. There is a lot of frosting these days, but still some cake.
This is a piece based on a panel discussion titled “Rethinking asset pricing” at the Spring 2009 NBER Asset Pricing meeting. It includes skeptical views on just how important credit constraints and liquidity really are. Liquidity is the frosting on the cake of finance. There is a lot of frosting these days, but still some cake.
Are we all Keynesians Now?
Link to Economist. The Economist had an online debate on this proposition, headlined by Luigi Zingales and Brad Delong. This was my two cents on the issue. Of course not, right? Some good Keynes quotes and a defense that economics has in fact advanced a bit in 70 years.
Link to Economist. The Economist had an online debate on this proposition, headlined by Luigi Zingales and Brad Delong. This was my two cents on the issue. Of course not, right? Some good Keynes quotes and a defense that economics has in fact advanced a bit in 70 years.
Fiscal Stimulus, Fiscal Inflation or Fiscal Fallacies?
An analysis of fiscal stimulus. Dropping money from helicopters is “fiscal stimulus,” and that will surely goose demand before it quickly leads to inflation. Usually though, “stimulus” means by debt that the government plans to pay back, and is supposed to work without inflation. Does it? Many arguments reflect classic fallacies. Most of all, the usual arguments imply that our current troubles come from inadequate borrowing and spending! No, our current troubles come instead from a credit crunch, and a “flight to quality” and “precautionary demand” for government debt. Fiscal stimulus could in principle help to quench that demand, but that problem can be more easily and reversibly solved by expanding the Fed and Treasury’s asset purchases.
Update: Paul Krugman and Brad Delong wrote very critical blog posts. However, neither seems to have read past the first few paragraphs. Brad says I think the velocity of money is constant. Keep reading, Brad, down to “A monetary argument for fiscal stimulus..” where it says “if money demand increases dramatically…”. Paul says I treat S=I as an identity, not an equilibrium condition. Keep reading, Paul, down to “aggregate demand has fallen.. deflationary pressure…” where nominal GDP is adjusting to equilibrate S and I. OK, I can’t condense all of macro down to 300 word blog posts, but if you can’t read more than that, don’t write nasty comments. Greg Mankiw and Dani Rodrik had nicer things to say. Greg’s blog is the place to go for intelligent stimulus skepticism. Declan McCullagh of CBS news wrote a nice article collecting many academic stimulus skeptics.
An analysis of fiscal stimulus. Dropping money from helicopters is “fiscal stimulus,” and that will surely goose demand before it quickly leads to inflation. Usually though, “stimulus” means by debt that the government plans to pay back, and is supposed to work without inflation. Does it? Many arguments reflect classic fallacies. Most of all, the usual arguments imply that our current troubles come from inadequate borrowing and spending! No, our current troubles come instead from a credit crunch, and a “flight to quality” and “precautionary demand” for government debt. Fiscal stimulus could in principle help to quench that demand, but that problem can be more easily and reversibly solved by expanding the Fed and Treasury’s asset purchases.
Update: Paul Krugman and Brad Delong wrote very critical blog posts. However, neither seems to have read past the first few paragraphs. Brad says I think the velocity of money is constant. Keep reading, Brad, down to “A monetary argument for fiscal stimulus..” where it says “if money demand increases dramatically…”. Paul says I treat S=I as an identity, not an equilibrium condition. Keep reading, Paul, down to “aggregate demand has fallen.. deflationary pressure…” where nominal GDP is adjusting to equilibrate S and I. OK, I can’t condense all of macro down to 300 word blog posts, but if you can’t read more than that, don’t write nasty comments. Greg Mankiw and Dani Rodrik had nicer things to say. Greg’s blog is the place to go for intelligent stimulus skepticism. Declan McCullagh of CBS news wrote a nice article collecting many academic stimulus skeptics.
IGM webpage
Visit the IGM webpage for links to lots of alternatives proposed by GSB faculty and related thoughts on how to get out of this mess. The 12 days of bailout video
Visit the IGM webpage for links to lots of alternatives proposed by GSB faculty and related thoughts on how to get out of this mess. The 12 days of bailout video
Is now the time to buy stocks?
WSJ op-ed. The average investor must hold the market portfolio of stocks and bonds. How can that possibly make sense in the current environment, especially with volatility at 50% per year? I show you how. Who should be buying more, and who should be selling more? Here is the slightly longer and more detailed manuscript, along with a short summary of research -- yes, this really is the summary of 30 years of finance research, not something I made up as I wrote it -- and answers to some common questions. Here I am on CNBC explaining it all in 20 seconds or less.
WSJ op-ed. The average investor must hold the market portfolio of stocks and bonds. How can that possibly make sense in the current environment, especially with volatility at 50% per year? I show you how. Who should be buying more, and who should be selling more? Here is the slightly longer and more detailed manuscript, along with a short summary of research -- yes, this really is the summary of 30 years of finance research, not something I made up as I wrote it -- and answers to some common questions. Here I am on CNBC explaining it all in 20 seconds or less.
Introduction for Gene Fama
Gene gave a talk on the history of the efficient markets hypothesis for the American Finance Association history project. This is my introduction. I try in 6 minutes flat to say why the efficient markets hypothesis is important and a great intellectual achievement. Video of Gene's speech and event from the IGM website.
Gene gave a talk on the history of the efficient markets hypothesis for the American Finance Association history project. This is my introduction. I try in 6 minutes flat to say why the efficient markets hypothesis is important and a great intellectual achievement. Video of Gene's speech and event from the IGM website.
The Monster Returns
My view of the credit crunch and why the Treasury asset-purchase plan won't work. I think the focus on troubled banks misses the strength of the banking system, and the catastrophic problems in credit markets. It also appeared on the Freakonomics blog.
My view of the credit crunch and why the Treasury asset-purchase plan won't work. I think the focus on troubled banks misses the strength of the banking system, and the catastrophic problems in credit markets. It also appeared on the Freakonomics blog.
Mortage Bailout
A letter to Congress against the TARP plan to buy sick mortgages. Luigi Zingales and Paloa Sapienza get credit for organizing this, with help from Anil Kashyap and Rob Shimer. Disclaimer: This letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date. It does not reflect all signatories' views on subesquent plans or modifications of the bill. A nice map showing where signatories come from courtesy of Mark Stouffer. Before anyone gets as swell head, it's worth reading the petition against Smoot-Hawley signed by 1028 economists.
A letter to Congress against the TARP plan to buy sick mortgages. Luigi Zingales and Paloa Sapienza get credit for organizing this, with help from Anil Kashyap and Rob Shimer. Disclaimer: This letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date. It does not reflect all signatories' views on subesquent plans or modifications of the bill. A nice map showing where signatories come from courtesy of Mark Stouffer. Before anyone gets as swell head, it's worth reading the petition against Smoot-Hawley signed by 1028 economists.
Milton Friedman Institute
The proposed Milton Friedman Institute made the news, thanks to a faculty protest letter. The letter is an interesting insight into academia, even here, with its talk of the “neoliberal global order,” “service of globalized capital,” “substitution of monetization for democratization.” I wrote a set of critical comments that got some press and amused my friends.
The protesters created a website (2014: alas apparently defunct, too bad, it was fun), and there is now a new website FriedmanFacts.com debunking them (2014: now hijacked to some nefarious marketing company). Gary Becker wrote an insightful blog post. In October 11 2008 I wrote a response to a new petition (2014: alas, now also seems to have vanished from the internet) against MFI.
All this is ancient history. The Institute, now named the Becker-Friedman institute, is up and running supporting all sorts of interesting research.
The proposed Milton Friedman Institute made the news, thanks to a faculty protest letter. The letter is an interesting insight into academia, even here, with its talk of the “neoliberal global order,” “service of globalized capital,” “substitution of monetization for democratization.” I wrote a set of critical comments that got some press and amused my friends.
The protesters created a website (2014: alas apparently defunct, too bad, it was fun), and there is now a new website FriedmanFacts.com debunking them (2014: now hijacked to some nefarious marketing company). Gary Becker wrote an insightful blog post. In October 11 2008 I wrote a response to a new petition (2014: alas, now also seems to have vanished from the internet) against MFI.
All this is ancient history. The Institute, now named the Becker-Friedman institute, is up and running supporting all sorts of interesting research.
Efficient Markets Today
Efficient Markets Today Talk given at the Conference on Chicago Economics. A second “discount rate” revolution has followed the first efficient-markets revolution, and dramatically changes how we think about financial markets. Alpha and beta are dead.
Efficient Markets Today Talk given at the Conference on Chicago Economics. A second “discount rate” revolution has followed the first efficient-markets revolution, and dramatically changes how we think about financial markets. Alpha and beta are dead.
Comments on the credit situation
Comments on the credit situation given at the GSB Global Financial Markets Forum, Sept 25 2007. Some good aspects of the current situation, some unheralded aspects of the Fed’s policy, some things that went wrong, and the downside of some quick fixes. Video of the event.
Comments on the credit situation given at the GSB Global Financial Markets Forum, Sept 25 2007. Some good aspects of the current situation, some unheralded aspects of the Fed’s policy, some things that went wrong, and the downside of some quick fixes. Video of the event.
Earlier Comments on the credit situation
Given at the GSB Global Financial Markets Forum. Some good aspects of the current situation, some unheralded aspects of the Fed’s policy, some things that went wrong, and the downside of some quick fixes.
Earlier Comments on the credit situation given at the GSB Global Financial Markets Forum. Some good aspects of the current situation, some unheralded aspects of the Fed’s policy, some things that went wrong, and the downside of some quick fixes.
Cost of Capital
Slides for a talk on cost of capital given at NABE conference, Sept 25 2005. The old advice to use the CAPM and 6% for cost of capital doesn’t make any sense now that we know expected returns vary over time.
Slides for a talk on cost of capital given at NABE conference, Sept 25 2005. The old advice to use the CAPM and 6% for cost of capital doesn’t make any sense now that we know expected returns vary over time.
Asset Pricing and the Equity Premium
Slides for the Smith-O’Brian Lecture, Notre Dame University, October 8 2004. (An update of several related talks)
Slides for the Smith-O’Brian Lecture, Notre Dame University, October 8 2004. (An update of several related talks)