By Barry Ritholtz - March 28th, 2009, 11:26AM Since the credit crisis began, I have frequently found myself in agreement with Paul Krugman. Not everything, but for the most part, especially on many major points, we are
sympatico: He has been correct about Moral Hazard, about the folly of these many bailouts, about the advantages of nationalizing the banks. And, I suspect he is right that the economy would benefit (short term) from a bigger rather than smaller stimulus.
Where we part ways is on his
criticism of Securitization. I simply do not see it as a proximate or even secondary cause of the crisis and collapse. It is a tool, and whether it is used for good or evil is a function of too many things beyond what its purpose is.
moreThe NYT's op-ed page is positively infested by econobloggers today: there's not only
myself, but also a certain Princeton economics professor whose
blog you might have noticed. His
column today echoes the big Simon Johnson
essay in the Atlantic, bemoaning the decades-long rise in the power of the financial sector, which still seems to have US governments both red and blue entirely captive:
Mr. Summers needs to get out more. Quite a few economists have reconsidered their favorable opinion of capital markets and asset trading in the light of the current crisis.
But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.
I'm sympathetic to this view: financial intermediation, in its various forms, should never account for 41% of total corporate profits, as it did this decade. That's closer to a Ponzi scheme than it is to value creation. But I disagree with the distinguished professor on the subject of securitization.
moreKrugman also had a piece on his blog referencing his column:
March 27, 2009
A reader writes in to complain about
today’s column, in which I compared the supposedly productive activities of financial wizards to the sleight-of-hand of stage magicians.
As a magician, he resents being compared to investment bankers.