One of the economist bloggers I routinely check is economist James Hamilton at Econbrower. He’s an eocnomist at the Ujniversity of California, San Diego. Thsi is from a recent post on the Paulson $700 billion rescue plan which, as Hamilton points out, is really a $6 trillion rescue package so far after adding up all the efforts taken to date.
But there is also a deeper question here that is harder to answer. How did the financial system come to be susceptible to such a profound degree of miscalculation and inappropriate leveraging of risk in the first place?…
How you get from our current situation to one where financial institutions are adequately capitalized is of course one of the key challenges of the moment…. Transparency strikes me as something that ought to be easier to achieve. I would start with a centralized clearing house for reporting all derivative contracts and collateral pledged for them…. the taxpayers are asked to commit such sums, we are owed a coherent and compelling explanation of why this kind of problem is never going to occur again…
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