Soccer Dad

Dow rallies

Why has the financial collapse been so resistant to attempted fixes so far?

Jennifer Rubin:

It is a massive task to build the rules, gather information, and staff up seven different groups charged with everything from homeownership preservation plans to government oversight. It is not surprising that the markets haven't reacted, since we are not yet out of the start-up phase.

Robert Samuelson:

What we've discovered is that the real problem is bigger. Large parts of the financial system are too thinly capitalized and too dependent on unreliable short-term debt. Leverage ratios often reached 30 to 1 for investment banks and hedge funds (that is, $30 of debt for every $1 of capital). The presumption was that the MBA types had learned how to "manage risk." That false conceit backfired. Low capital didn't adequately protect against losses. Confidence and trust evaporated, because no one knew which institutions held suspect securities, how much the losses were and who was ultimately safe.

Deleveraging -- a shift from excessive debt toward more capital -- is inevitable and desirable in the long run. The trouble is that, in the short run, it could destabilize the economy if it proceeds too rapidly.

And yet, today, the Dow is up over 900.

I blame Bush. (Instapundit hasn't said that yet, so I figured I ought to.)

My guess is that the yo-yo isn't over yet.

In other economics news, Paul Krugman won the Nobel Prize in economics. Freakonomics likes the choice.

Whether you like his Times columns or not, you have to admire Krugman's tenacity. He personifies the true public intellectual, and even when he writes a column that irritates you, at least you know it involves careful thought and a true dedication to the public debate.

I've read a few of his op-ed columns and rarely see "careful thought." If you're talking about his Slate articles, that's a different story.

Donald Luskin disagrees vociferously.

The person alive to receive the award is merely a public intellectual, a person operating in the same domain as Oprah Winfrey. And even as a public intellectual, the prize is inappropriate, because never before has a scientist operating in the capacity of a public intellectual so abused and debased the science he purports to represent.

And he ends with a sharp putdown:

The only question now is whether Krugman will pay taxes on the prize at the low rates enabled by the Bush tax cuts he has done so much to discredit, or if he will volunteer to pay taxes at higher rates he considers more fair.

Ouch.