The UK’s Prospect magazine – a genial, well-edited left-liberal take, by American standards, on politics – offers its list of the 25 leading public intellectuals offering commentary and sage advice in the financial crisis (in some cases action, too – Ben Bernanke is included). The list is full of worthy commentators, and I wouldn’t disinvite anyone off the list – but it does seem to me a tad skewed to one direction, and not just with the natural weight given to UK people and, err, log-rolling in our time, i.e., Prospect contributors.
I was going to frame the question, “Who would you add to this list if you want to make it just as brainy but a bit more ideologically balanced?” I’m not sure, however, looking back over it again, that I do think that everyone on this list should be here. So let’s reframe it. Twenty-five max. For every name you nominate to go on, name who you vote off the island.
Interruption: Changed my mind … season of peace on earth, good will toward men, etc., etc. No voting off the island. Add up to ten names of your own to these and say why; no criticism of the existing list.
(In another post, but not this one, I’ll ask how you would set up a reality show involving economists and desert islands and, no, not where they all get eaten by hungry baboons – or each other. Not this post.)
1. Simon Johnson. Professor at MIT, Peterson Institute fellow, former IMF chief economist, blogger, troublemaker and scourge of once-mighty banks—a worthy winner in 2009.
2. Avinash Persaud. Financial liquidity analyst, adviser to governments around the world, the man who has studied “herd” behaviour in finance, and now the man trying to stop it.
3. Adair Turner. An unusually bold regulator, Turner made headlines worldwide slamming “socially useless” finance (in Prospect) and suggesting a Tobin tax to put sand in the wheels of global finance.
The first three are the top choices, and everyone else in alphabetical order:
Ben Bernanke. Cerebral Federal Reserve chairman, seen by many as saviour of the US economy while congress dithered.
Andrew Haldane. Bank of England director who warned of a “doom loop” of perpetual banking bailouts.
Philip Hildebrand. Swiss banker who boldly pushed cutting his country’s banks to size.
John Kay. Well-regarded British economist who wants a return to simple banking.
Mervyn King. Bank of England boss, initially wrong-footed by the crisis, but had a better, more aggressive 2009.
Richard Koo. Insider adviser to politicians and banks, an expert on the lessons from Japan, and deficit dove-in-chief.
Paul Krugman. Celebrated economist and author of a must-read New York Times essay on the failures of economics.
Christine Lagarde. French minister of economic affairs who got just the right mix of stick and carrot for French banks.
Donald Mackenzie. Edinburgh professor, author of many sharp LRB essays unpicking the anthropology of finance.
Lucy Prebble. 28-year-old British author of Enron, the best play yet on irrational exuberance.
Nouriel Roubini. Legendarily gloomy, normally correct finance analyst whose blogs alone can move markets.
Brad Setser. Young policy wonk, co-blogger with Simon Johnson and author of Bailouts or Bail-ins? with Roubini.
Robert Shiller. Credit-crunch US sage and behavioural economics pioneer.
Jon Stewart. Brainy American satirist whose Daily Show has made finance a laughing stock.
Joseph Stiglitz. Nobel laureate, chair of UN commission on financial reform and harsh critic of finance-as-usual.
Matt Taibbi. US journalist, wrote a celebrated scathing attack on Goldman Sachs.
Paul Volcker. Ex-Fed chair, pushing for splitting up investment and savings banks.
Elizabeth Warren. Harvard professor, consumer rights watchdog, leads the panel watching over Obama’s bailout money.
Martin Wolf. FT writer and the Anglosphere’s most influential finance journalist.
Paul Woolley. Innovative LSE thinker on “capital market dysfunctionality.”
Yu Yongding. Influential economist at the Chinese Academy of Social Sciences.
Zhou Xiaochuan. Bank of China head, architect of China’s response to the crisis.
Javert says:
On:
Thomas Sowell — best book on the topic The Housing Boom and Bust
John Allison — former Pres. and CEO of BB&T Corp. ($165 billion in assets). The best insider’s analysis of how government regulations caused the financial crisis.
Off:
Turner and Volcker for pushing the very statist ideas that caused the crisis.
December 19, 2009, 9:41 pmKenneth Anderson says:
Okay, excellent – and you beat me to my Peace on Earth, Goodwill change to the game above.
December 19, 2009, 9:46 pmEzra says:
For all that’s written about the crisis, far too few understand the causes or the solutions. The financial crisis was caused by the federal government’s massive expansion of federally guaranteed housing debt. The failure to enforce a 20% down requirement (for any federally subsidized mortgage) was an obvious enabler, moreover, as the enforcement of such a requirement would have effectively made housing-specific inflation all but impossible, preventing the bubble. Interest rates being artificially held too low for too long obviously aggravated this dynamic. The combination of low-cost, non-recourse loans with no money down meant the taxpayers bought the homes, and the ‘borrowers’ had a no-risk ‘heads I win, tails you lose’ deal. There isn’t anything complicated about what caused this bubble or its bursting. The other factor that enabled this bubble was the combination of regulatory policy pushing regulated financial institutions to buy housing-based securities, and rating agency complicity in risk white-washing. All bubbles eventually burst, because there isn’t enough money to continue the pace of asset-price inflation they would require to be sustained. Everyone who points their finger at the private sector for this debacle is to my mind part of the problem. The private sector didn’t earn any medals of honor, but neither did it do anything other than the predictable. The incentives here were created by government and regulatory intervention in the housing and financial markets.
December 19, 2009, 9:54 pmrpt says:
It’a good thing that the conservatives were not in charge of the government in the 2,000′s and that the crisis is unrelated to the actual behavior of the market players. At some point you have to let ideology go and face reality. ACORN did not create derivatives or credit default swaps or cause the global financial crisis.
December 19, 2009, 9:55 pmRyan says:
On: Peter Schiff
Off: Helicopter Ben
I’d also argue that Thomas Woods’ “Meltdown” is the most persuasive take on the crisis.
December 19, 2009, 9:56 pmEzra says:
Talk about confusing cause and effect. House price inflation was a function of federal guarantees, low interest rates and little- to no-money down for mortgages. There is literally no other way for the market to have inflated as it did. Once the asset-price inflation took hold, the consequence was predictable — over-dedication of resources, supply increases, risk increases, and eventually an inability to sustain, followed by a huge deflation. The defaults shouldn’t surprise anyone: they’re what you get when ‘borrowers’ have little to no money down and non-recourse debt. The entire deal was a free carry trade. The smart people in the market were the borrowers, who recognized under-priced debt and took advantage of it, and the issuers, who saw the same opportunity on the securitization side. The idiots were the legislators and regulators, and the buyers of the paper. The schmucks left holding the bag are the tax-payers, as always. There’s plenty to criticize in the derivatives market, but thinking it caused the housing bust is just wrong.
December 19, 2009, 10:04 pmEric Rasmusen says:
The Christmas Cheer idea is good, and I’m going to follow it. Here are some people worth reading who have used thinking and data to write pieces for public consumption. Each has written a number of pieces on the banking crisis. I list only the first one that came to mind, not necessarily the best of each.
Charles Calomiris (economist, Columbia U. )
Financial Reforms We Can All Agree On
Rating agencies should use numbers, not letter grades.
Steve Sailer (blogger, journalist)
CRA: Does anybody really want to know?
Robert Litan (economist, Brookings)
Scoring The Obama Financial Reform Plan
Luigi Zingales (economist, Chicago)
Let’s Get the Bank Rescue Right
Stan J. Liebowitz (economist, Texas-Dallas)
December 19, 2009, 10:34 pmAnatomy of a Train Wreck: Causes of the Mortgage Meltdown
Allan Walstad says:
Who said they did? At some point you’ve got to let go of empty posturing and come up with an argument.
December 19, 2009, 10:38 pmMark N. says:
I don’t think there’s much of an argument that it caused the housing bust, but there’s a good argument that it magnified its effects to such an extent that it turned what would simply have been losses and a few bankruptcies into a destabilization of the entire financial sector. Without being multiplied by derivatives, there simply wasn’t enough outstanding mortgage debt to cause that much of a crisis: if you take the total outstanding mortgage debt and multiply it by the default rate, you don’t get high enough losses to take out companies like AIG, which didn’t even own that much in the way of mortgages to begin with.
But, there was at least 10:1 leverage piled on top of the mortgages, which made defaults much more problematic, since every $1 in defaults caused at least $10 in losses, and spread throughout the financial sector by a cascade of underpriced/unpriced counterparty risk. Mortgage defaults were certainly the trigger, but I think accounted for probably less than 10% of the actual losses.
In figuring out what to do going forward, I think the bigger issue is not looking at the specific trigger for this crisis (any number of things can trigger crises), but why the financial sector as a whole was so systemically weak that it could be triggered into such a collapse.
As for who to add, I also have a book-author rather than policymaker suggestion: Reinhart and Rogoff’s This Time Is Different: Eight Centuries of Financial Folly.
December 19, 2009, 10:39 pmAllan Walstad says:
The one person above all who makes consistent good sense in absolutely straightforward language is Robert Higgs. More generally, the Austrians have laid out clearly how real estate bubble/busts are precipitated by the Fed pushing down interest rates while the pols push banks to make unsound loans and everybody assumes (correctly, as it turns out) that the feds will step in and bail out the big Wall Street players. Bernanke is part of the problem, not the solution. Krugman is by now a cartoon-figure collectivist, and Stewart–JON STEWART?–oh cripes.
December 19, 2009, 10:48 pmKenneth Anderson says:
Mark N: Agree with you re This Time is Different. Amazon is charging a premium for it on Kindle … actually, hm, hm, do you think it’s possible that Amazon Kindle is looking at my buying preferences and just charging me a premium, figuring that I’ll buy at that price? I am in a conspiracy-theorist mood tonight!
December 19, 2009, 11:04 pmMark N. says:
Odd— I’m seeing a slight discount! Amazon offers me $19.97 for the hardcover, and $17.97 for the Kindle.
December 19, 2009, 11:29 pmJRL says:
The proximate cause of the current problems was the irresponsible run-up in interest rates by Alan Greenspan from ’05 to ’06. It doesn’t matter if they never should have been allowed to go as low as they did-the speed with which they were jacked back up was devastating. There is no such thing as the economy be “too hot”.
The markets were then pushed over the edge by the inevitability of the Obama presidency after Labor Day 2008. If people understood what a stock price represents (i.e. PV of future cash flows), this fact would be obvious.
December 19, 2009, 11:30 pmOff Kilter says:
I think it completely unwarranted to demand we actually come up with names that belong on the list in order to justify removing names from the list…
December 19, 2009, 11:30 pmOff Kilter says:
Mark N: I think Ken’s point re Kindle pricing is that the vast majority of their books are $9.99. So relative to that, the Kindle pricing of This Time It’s Different is high.
December 19, 2009, 11:32 pmSenatorX says:
More generally, the Austrians have laid out clearly how real estate bubble/busts are precipitated by the Fed pushing down interest rates while the pols push banks to make unsound loans and everybody assumes (correctly, as it turns out) that the feds will step in and bail out the big Wall Street players. Bernanke is part of the problem, not the solution. Krugman is by now a cartoon-figure collectivist
Cheer!
December 20, 2009, 12:29 amSteve says:
The markets were then pushed over the edge by the inevitability of the Obama presidency after Labor Day 2008.
And undoubtedly, the markets have been recovering for the last 9 months due to the inevitability of his impeachment.
The more time one spends reading comments on the Internet, the more one weeps for the future of this country.
December 20, 2009, 12:37 amCornellian says:
I’ve got “Too Big To Fail” on my reading list. The Economist has it on its “Best Books of 2009″ list.
December 20, 2009, 12:45 amJRL says:
That’s quite the nonsequitur.
During his campaign, Obama was promising an immediate end to the 15%/5% capital gains tax rates. Even absent any economic downturn, increasing the capital gains tax rate decreases the value of stocks because, as I mentioned above, a stock price is the PV of future cash flows. Higher taxes = lower cash flows. It’s not exactly rocket science.
December 20, 2009, 1:46 amSarcastro says:
The market financial crisis had a number of contributing factors. It is silly to blame one single factor for the collapse. You have that housing bill, ACORN, Obama’s election, liberals, laws existing, Ezra not being elected philosopher-king.
See? A multifaceted problem!
December 20, 2009, 2:51 amProspect Magazine’s Top 25 Brains of the Financial Crisis | Liberal Whoppers says:
[...] the article here: Prospect Magazine’s Top 25 Brains of the Financial Crisis Share this [...]
December 20, 2009, 3:12 amrpt says:
See Hans Bader/Corporate Enterprise Institute’s posts on this subject. He is pretty explicit in making this argument.
December 20, 2009, 9:34 amSarcastro says:
[John Stewart's reflexive mocking is as good as the Austrian school's reflexive doomspeaking.]
December 20, 2009, 10:25 amKenneth Anderson says:
Names, names, names … I’m trying to Amazon xmas shop here, and everyone on my list needs a financial crisis book!
December 20, 2009, 10:39 amAllan Walstad says:
rpt: Hans Bader is with the Competitive Enterprise Institute. If you have a link to a statement by Bader, where he claims ACORN created derivatives or credit default swaps or caused the global financial crisis, I’ll look at it. As far as I can see, no one on this thread has made such a claim or referred to any such statement by Bader or anyone else.
By “come up with an argument,” I meant can you come up with an actual argument of you own, for or against any relevant position, or is your repertoire limited to empty innuendo regarding others’ presumed ideological rigidity?
December 20, 2009, 10:46 amAllan Walstad says:
Thomas E. Woods, Ron Paul, Robert Murphy (on the Great Depression)…
December 20, 2009, 10:55 amEzra says:
Making things complicated is a great way to obfuscate, as well. There are always multiple things going on, but that doesn’t mean you can’t attempt to identify root causes at the heart of the problem. Failure to try to do so is really an effort in willful ignorance.
In any event, the _collapse_ was inevitable. All bubbles collapse, because by very definition they’re unsustainable. The important question is what caused the bubble.
December 20, 2009, 11:43 amFrank Howland says:
I strongly second Charles Calomiris.
For a libertarian, somewhat Austrian perspective two people associated with the Library of Economics and Liberty:
1) Arnold Kling, one of the three bloggers at Econlog (econlog.econlib.org), has interesting things to say. He is both skeptical of government regulation and of the big banks.
2) In addition, Russell Roberts (www.econtalk.org) has had a series of podcasts at Econtalk with economists on the financial crisis. Roberts is in general a very good interviewer and he invites people from a wide part of the ideological spectrum. Some of the interviews are better than others and some are mildly infuriating, but many contain very good insights.
A somewhat liberal take, skeptical of Wall Street: Felix Salmon (blogs.reuters.com/felix-salmon/) is an excellent financial journalist and has valuable commentary on finance in general and many useful links.
December 20, 2009, 12:19 pmLance says:
Matt Taibbi & Jon Stewart? Are they serious?
December 20, 2009, 1:08 pmTweets that mention The Volokh Conspiracy » Blog Archive » Prospect Magazine’s Top 25 Brains of the Financial Crisis -- Topsy.com says:
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December 20, 2009, 1:41 pmAnon314 says:
Walter Block
Gerald Celente
John Derbyshire
Robert Higgs
Gary North
Ron Paul
Nouriel Roubini
Peter Schiff
Thomas Sowell
Paul Volcker (seems to half understand economics)
Thomas Woods
In absentia:
December 20, 2009, 3:18 pmBastiat
F.A. Hayek
Carl Menger
Ludwig von Mises
Murray Rothbard
Baseballhead says:
Have you read the comments here? The posters who claim to be the most serious are the people who need to be taken least seriously.
December 20, 2009, 3:19 pmMJG says:
Matt Taibbi’s “celebrated” attack on Goldman Sachs was hyperbole, inanity, falsity, and at times, all three. Goldman deserves blame, but his article goes way off the deep end. Megan McArdle did a nice job showing exactly how.
December 20, 2009, 3:27 pmsteve s says:
Funniest suggestion-Sailer. No one of consequence buys the Cra thing anymore. If you want to advance that you should pick Collison’s article as it was much, much better written.
Add- Mankiw, Cowen, Kling
Remove-Volcker, Prebble, Taibbi
December 20, 2009, 3:48 pmTim says:
Yep. +1 on this one.
December 20, 2009, 4:26 pmEzra says:
I think there’s plenty to criticize in the treatment of derivatives — most particularly, in my view, the lack of transparency, poor accounting and ignorance of counter-party risk. That said, the contribution of derivatives to the housing bubble was leverage and liquidity. They increased systemic risk, but not underlying risk — that they just shifted. The losses were coming from the primary loans. And the massive increase in federal guarantees meant the liquidity was going to be there. Absent securitizations, it might have inflated slower, and that would have probably been better than what happened, but it was going to inflate in any event. I’d also note that the bulk of the derivatives ‘game’ — AIG in particular — is a creation of regulators and rating agencies. ‘Wrap’ requirements for investment grade paper, e.g. When the market goes bonkers creating and marketing useless financial instruments, there’s generally a distortion underlying it all, and there certainly was here.
December 20, 2009, 6:12 pmEric Rasmusen says:
This thread is a good example of how comment moderation can really help a blog. Many of the comments are clearly off-topic and can be deleted with only a half-second’s thought.
This blog, like most, could be improved by deleting most of the comments. I think blogs ten years from now will be valued as much for their comments as their posts, which will put a premium on moderated blogs.
December 20, 2009, 6:14 pmrpt says:
AW:
Hans Bader from the ACORN thread:
“ACORN, more than any other single organization, helped spawn the financial crisis and mortgage meltdown through promoting liar loans and getting government officials to impose politically-correct “affordable housing” mandates on the GSEs and others.”
ACORN did it. And it’s the “Corporate” Enterprise. Their policies are anti-competitive in very meaningful respect.
December 20, 2009, 7:47 pmAllan Walstad says:
Oh, so “Corporate” was indeed just another empty sneer on your part. I was giving you the benefit of the doubt.
What I hear Bader saying in your quote (to which you provide no link, but ok) is patently not that ACORN created derivatives or credit default swaps–that was just lard-spreading on your part, wasn’t it? But stupid, destructive government interventions in the market don’t just happen out of thin air. They are the result of political pressure and political opportunism. If Bader’s assessment is that ACORN’s influence was particularly significant in that regard, he may well be right.
As far as the actual comments offered on this thread are concerned, your original post was a non-sequitur, which is what I called you on. Still waiting for any substantive comments, facts, or arguments on your part relevant to the topic.
December 20, 2009, 8:49 pmLN says:
Ezra makes the customary set of self-refuting arguments. The government apparently “encouraged” private actors to make bad investments — and this means that the government is to blame, because it is “predictable” that private actors would behave badly if given a bit of encouragement.
But economics is about equilibrium and checks and balances. Home buyers would love to avoid payments. They are supposed to be held in check by lenders who are concerned about making a profit. OK, so the government introduces a distortion by requiring certain kinds of favorable loans. Then you would expect private actors to run away and try to avoid this terrible area, just as controls on CEO pay supposedly make it hard to find a CEO, and rent control supposedly makes landlords not want to be landlords. OK, but then lenders securitized the loans and passed the risk on to someone else so they had no skin in the game. Then you would expect them to be held in check by investors buying these securities who are concerned about making a profit on their investments. And no, favorable treatment of mortgage-backed securities for regulatory-capital calculations is not a sufficient excuse, because regulatory capital requirements are just a minimum. If the government forces you to save some of your income, it’s not the government’s fault if it that turns out not to be enough!
At any rate, there is no sense in which the government forced the housing bubble to spread and infect the entire global economy. I am sure that many commenters here feel that most of the government’s actions are illegitimate, but it takes magical thinking to jump from there to the idea that it is pointless to criticize private actors. It’s interesting that when the government artificially lowers CEO pay then it becomes impossible to find a good CEO, but when the government artificially lowers the cost of housing we “predictably” get an out-of-control housing bubble that damages the entire global financial system.
And JRL is hilarious. The stock market is up 60% this year — surely because investors have become aware of the inevitability that Obama will leave the Presidency one day. (In reality, Obama’s poll numbers surged *after* the financial collapse, but whatever…)
December 21, 2009, 1:08 amLance says:
The lack of Robert Pozen is disheartening.
Also, a book edited by Martin Feldstein for the NBER is rather good on the topic of financial crises: “The Risk of Economic Crisis”, specifically the article authored by Larry Summers is enlightening.
The collection was published in 1991, and it’s interesting how spot-on the general theoretic outlines are in regards to what the United States experienced the past year or so.
I think a lot of Austrian critiques are based upon a confusion often assigned to Keynesian–confusing nominal variables with real variables. A Monetarist would argue it is not the interest rate which matters, but rather the supply of a preferred aggregate. But this assumes a fixed demand for money, which is subject to (as Friedman conceded) to technological developments.
The demand for money changed substantially post-1980 with financial deregulation and evolution, as intermediation processes improved. The shifting demand for money altered monetary velocity in such a manner as to accomodate a larger stock of money (look at the velocity of money during the alleged period where Greenspan followed too loose a policy). Looking at peaks of aggregate money supply and housing start peaks does not lend any more credence to the commonly accepted hypothesis that at the bottom of this ruin lies irresponsible monetary policy.
December 21, 2009, 2:34 amJoseph Slater says:
You should definitely add Damon Silver of the AFL-CIO. See, e.g., here. IMHO, he’s pretty much exactly right.
If you want to delete a “liberal” to add Silver, you should take out Jon Stewart. Don’t get me wrong — I love “The Daily Show,” and Stewart is absolutely the best at eviscerating crappy media coverage of this issue and other issues. But he’s not an economist.
December 21, 2009, 10:37 amAllan Walstad says:
LN: At the margin, people respond to incentives. Bad incentives means more people making bad choices. It doesn’t mean suddenly everybody chooses badly, nor does it have to. If the Fed is pumping dollars into the banking system, there is an incentive to lend the money on more favorable terms. Easier credit means more demand for home loans, more demand for homes, rising home prices, and more people betting more on the expectation of further rising prices.
But none of this means that people actually have more wealth to produce the greater number of homes. Eventually the bubble bursts, people find they couldn’t actually afford those homes, banks find they can’t collect on the loans, and securities based on those loans crash in value. This is actually a very good example, though a somewhat unconventional one, of Austrian business cycle theory, in which monetary expansion stimulates investment projects that can’t be maintained. The necessary liquidation process is what we experience as a “recession.” Government interventions to stave off the process can only prolong the downturn or stimulate new, worse bubbles.
The point is not that markets are perfect. Nothing is perfect. The point is that government intervention is not some wise, stabilizing force for the general good. Quite the opposite in many cases.
December 21, 2009, 11:38 amLN says:
I don’t see where I was arguing that the government is necessarily a wise, stabilizing force for the general good. I do see where I was criticizing the idea that the government is the only entity with “free will” and that all other actors are automata which behave predictably and reasonably (if not very well).
If our economy is set up so that inflated (for whatever reason) prices in one particular asset class “predictably” lead to a global financial meltdown, then I do think the rules of the game should be re-written as best possible so that this is not the case. I am not saying that any government action in this area will necessarily make things better, I’m just saying that there is considerable room for improvement.
December 21, 2009, 2:09 pmJoseph Slater says:
Yikes, a typo in my recommendation: Damon Silvers, with an “s”; not Damon Silver.
December 21, 2009, 8:16 pmAllan Walstad says:
LN: Received. Reasonable place to quit for now.
December 21, 2009, 9:38 pm