Tuesday, October 7, 2008

What I Think I Know About the Recent Unpleasantness...

...or, "I'm not an economist, but I play one in this blog."
  1. Any time anyone leverages more than about ten to one, something bad will happen eventually.

  2. Issuing credit default swaps as a derivative for speculation, rather than as simple insurance, seems like a really bad idea.

  3. Mark-to-market accounting rules don't make a lot of sense in an illiquid market.

  4. Encouraging Fannie and Freddie to securitize subprime loans didn't work out so well.

  5. The uptick rule for short selling looks pretty good if you can create a reasonable decimalized version of it.

  6. The TARP may stop the bleeding, but the patient will keep relapsing until the impossible-mortgage-default-causing-house-prices-to-drop-making-other-borrowers-go-underwater-causing-more-defaults-causing-house-prices-to-drop-further cycle is interrupted. Maybe the answer is to wait for all the iffy mortgagees to default, but I suspect that something like a voluntary cramdown (how's that for an oxymoron?) will be needed, where principal is reset to current market value and interest is closer to the teaser rate than it is to the balloon rate.

  7. It's bad enough that we the public are utterly ignorant of finance, but it's mind-bogglingly catastrophic that 95% of our leaders and legislators are no less ignorant. This is an area where Sturgeon's Law really, really doesn't help.

  8. This may be the first time in history where global damage was done by poorly generated computer models. This should commit climate scientists to a moment of sober reflection.
Other than that, I got nothin'.

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