Simon Johnson is an economist, but he's also, as Tim Fernholz writes , a pretty committed political economist. The core of his approach to the financial crisis has been an analysis of power relations, not mere capital inflows. Some folks argue that the financial crisis is a simple story of bad decisions by poorly incentivized bankers. Johnson believes that the crisis is fundamentally a story of financial elites capturing the political system, convincing it to deregulate their sector, turning deregulation into an ideology of sorts, and then, once it all went sour, using their political power to obstruct needed policy corrections. In other words, power caused the crisis and power prevents a solution to the crisis. But it's not clear where that leaves us. The implication of Johnson's argument is that we should make rich people a lot poorer in order to diminish their capacity to capture the political system. But he has not, to my knowledge, said that. Indeed, I've read a lot from Johnson...

The argument that Wall Street is actually allergic, rather than attracted, to risk brought to mind a quote from Michael Lewis's Liar's Poker: The biggest myth about bond traders, and therefore the greatest misunderstanding about the unprecedented prosperity of Wall Street in 80s, are that they make their money by taking large risks. A few do. And all traders take small risks. But most traders act simply as toll takers. The source of their fortune has been nicely summarized by Kurt Vonnegut (who, oddly, was describing lawyers): "There is a magic moment, during which a man has surrendered a treasure, and during which the man who is about to receive it has not yet done so. An alert lawyer [read bond trader] will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on." Lewis, of course, was talking about 80s-era bond traders. This crisis was not really a crisis of 80s-era bond trading. But though the instruments are different, the...

It's good news that the World Bank is going to offer $55 billion in infrastructure stimulus to developing nations. But maybe it's testament to the times that that number seems pretty low to me: $55 billion just isn't much money given the scale of the problem. And this is a bigger issue for developing nations. A couple years of output gap in America means a couple years of pretty unpleasant outcomes. A couple years of output gap in a developing nation means real misery, and a backslide that many families will not recover from.

I'd missed this the other day, but Tim Geithner apparently comforted the markets by assuring them that the “vast majority” of banks are well capitalized. But this, as Paul Krugman says , is meaningless. "There are 1,722 institutions on the Fed’s list of 'large commercial banks'....But the big guys are where the money is. The top 10 institutions on that list have 58 percent of the assets. (If we looked at bank holding companies rather than only commercial banks, assets would be even more concentrated.) So it’s perfectly possible that the 'vast majority' of US banks are well-capitalized, but that banks with, say, a third of the system’s assets are insolvent." In effect, it's like me saying a vast majority of your meal isn't poisonous. Not good enough. In fact, Geithner's wording actually unsettled Krugman. "Treasury knows the difference between raw numbers of banks and asset holdings, even if the press seemed to miss the distinction, and if he’d meant to say that the vast majority of...

As a sort of follow-up to the title of the last post, I became interested recently in what happened to Ferguson from Clarissa Explains It All. (This blog, as you know, is not afraid to engage the big questions.) Turns out that after Clarissa, Jason Zimbler , the actor who so brilliantly portrayed Ferguson, left the business and went to college at Notre Dame. No more acting. But he did found a support group for child actors called Been There, Done That. The more you know.

The suicide of Fannie Mae's chief financial officer reminded me of an old stat I'd read about the Great Depression being a historic apex for suicides. That, it seems, is correct. The peak was in 1933, with 17.4 out of every 100,000 Americans killing themselves. So can we expect to see a sharp rise in suicides again? Happily, the rest of the century hasn't demonstrated any relationship between recessions and suicide. There are a variety of potential explanations for this: The welfare state renders recessions less hopeless and painful. Mental illness is better recognized and more easily noticed. The weird point in the data is that unemployment is positively associated with suicide. But recessions aren't. That's a bit strange considering that unemployment increases amidst recessions. The answer appears to be that chronic unemployment is associated with other ailments -- mental illness, substance abuse, etc -- that also increase the risk of suicide. In recessions, the newly unemployed are...