David Leonhardt's column today makes a bunch of good points, and a couple odd suggestions. First, it's worth stepping back for a moment to admire the economic normalcy of such an extraordinary moment. The epicenter of American capital is imploding, and though the shockwaves may yet roil the country, most workers aren't feeling much more than a mild recession, and the stock market's drop has been sharp rather than catastrophic. As Leonhardt writes, "For the past two and a half months, I’ve been on a break from column writing, and I’m struck by how much has changed during that time — and yet how little the big picture has changed. Lehman Brothers, Merrill Lynch, Fannie Mae and Freddie Mac have all essentially collapsed. But just as at the start of the summer, economists can’t even agree whether the country is in a recession." His column goes on to detail one of the government's last major bail-out -- that of Chrysler -- and argue that its lessons suggest we should be playing offense rather than defense. As such, he calls for tax reforms that advantage savings, investment in research and development, and health reform. All good ideas, but none actually count as offense against the financial crisis. Indeed, no one knows how to play offense on modern financial instruments because no one really understands modern financial instruments. That's part of the cause of the collapse: Uncertainty born of insufficient understanding. Mortgage backed securities aren't cars. In fact, they're really not mortgages, either. And few know how many there are, or how severe their downside risk really is. Part of the reason no one seems able to get in front of this crisis is that no one really understands where the front is.
