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I know I know nothing; but at least I know that Willem Buiter
Antidote du jour:
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Willem Buiter “Since most liabilities (assets) of banks are assets (liabilities) of other banks and non-bank financial institutions, an intelligent, coordinated netting or write-down of intra-financial sector assets and liabilities is technically possible without significant impact on the exposure (on both sides of the balance sheet) of the financial system as a whole to the non-financial sectors.”
Hmmmm….so if I owe you a zillion dollars, and you owe me a zillion dollars, we can make a fortune in perpetuity by collecting interest and fees on our zillion. Can someone loan me a zillion? Federal Reserve???
Interestingly, I focused on the SAME passage, which I quote more fully:
“Rapid deleveraging of a modern multi-layered financial system needs not be massively disruptive for the real economy, although it will be if it is done in an uncoordinated, voluntary manner. Since most liabilities (assets) of banks are assets (liabilities) of other banks and non-bank financial institutions, an intelligent, coordinated netting or write-down of intra-financial sector assets and liabilities is technically possible without significant impact on the exposure (on both sides of the balance sheet) of the financial system as a whole to the non-financial sectors.”
I don’t take from the above that you and I should keep trading interest payments; I take from the above the Buiter “Jubilee” thesis (and one of the Tyler Durdens once observed something similar): We have to write it off. But then we’d have to get jobs, make something, do something for somebody. Can’t just sit around and own things any more…
I’m not quite sure when it is in one’s experience of Larry Summers that one realizes that they are in touch with just the most loathsome of maggots. To me, he seems the very embodiment of the piggishly self-indulgent political clique which has launched the present war of aggression against the American people. One easily imagines him belching loudly and picking his teeth after a sumptuous meal at some Washington watering hole.
Love Mr. Beria’s comments immediately above. I had a similar though less fully formed reaction to the picture of Summers in the article.
These people have such little shame, they expect us to forget their prediction that if only ARRA were enacted, the unemployment rate would peak at 8%.
They don’t know what time it is, economically speaking.
DoctoRx,
Clearly, great minds think alike. You’ll be entertained – or frightened – by this little vignette at Ed Harrison’s site this morning:
http://www.creditwritedowns.com/2009/09/i-want-to-be-a-corrupt-official-when-i-grow-up.html
Understand that Summer’s office has been in touch with this youngster. :-)
Yves,
I posted this pic at a friends blog, credited it to your site and name-afterwards got to thinking I should have requested permission first.Let me know if there’s an issue.
Thanks
Willem Buiter can really BS with the best of them can’t he? Yes, the financial system is complex. A surprise I know. But I get really tired of this throwing one’s hands up in the air and saying what is an economist to do? The housing bubble was easy to see and easy to predict it would burst. The size of that bubble when it burst put the whole of the paper economy based on overleveraging and fraud at risk. That paper economy was 30 years in the making. Its vulnerabilties were not exactly unknown. When the housing bubble went the rest was set to follow. But this is where forecasting has not a weakness but a natural limitation. We can figure out what will happen if the processes are left to themselves, but as with what happened after the housing bubble burst, or after the meltdown, or what may happen next year, it being an election year, government or the political process can intervene and affect the dynamic. At that point, we have to project the likely consequences of these interventions, factor them into our previous model, and see where that leaves us.
For example, all the money that Obama, Geithner, and Bernanke (and Bush and Paulson before them) have shoveled at the financial sector has had an effect. It has kept banks from folding outright and pumped up the stock and oil markets, but it has done nothing for the fundamentals of housing, jobs, consumer spending, credit, and debt. So we can predict that when we hit the wall has been delayed but that we still will hit it.
I also wanted to add that Nocera had a masterpiece of idiocy up at the NYT:
http://executivesuite.blogs.nytimes.com/2009/09/11/lehman-brothers-and-the-guns-of-august/
In it, he argues that the collapse of Lehman was a good thing. He fudges on the chronology but the whole argument is screwy. It’s like saying that it was a good thing that the Titanic hit the iceberg it did because it might have hit a bigger one later. The idea that the ship might have gone slow through ice filled waters or sought to avoid them altogether does not occur to him, i.e. that Lehman could have been unwound in a controlled way. It says a lot about the piss poor quality of financial reporting that a supposedly top financial reporter at the the nation’s leading newspaper could write such unabashed crap as this.
Hugh,
Buiter is at his lamest here.
What he fails to grasp is that it is not so much what the most recent findings in experimental economics (which I might add is frequently used in conjunction with neuro-economics) and evolutionary science prove, but what they disprove. And what they disprove is that (1) behavior isn’t always motivated by P-1 (pleasure) maximization, and (2) greed and selfishness are not the only sentiments that humans are capable of feeling.
These two findings of course leave in shambles the entire classical economic edifice and those ideologies that followed in its wake—Marxism, neo-classism, etc. And that is an extremely bitter pill for the true believers in instrumental rationality, scientific materialism and scientific objectivism to swallow.
The imperialist and arrogant claim of instrumental rationality, scientific materialism and scientific objectivism to be the only valid forms of knowing, coupled with their almost universal acceptance by academics and “experts”, meant the banishment from the public realm of other forms of knowing, such as common sense, wisdom and good judgment.
We can see quite clearly, just like in the aftermath of the Vietnam War, where this has gotten us. And yet Buiter (along with Geithner, Summers and Bernanke) is blind to the obvious because of this epistemological fixation.