Economists Recieved Nobel Prizes in Economics for Causing Current Crisis

[Ming]

Enough with the personal stuff folks...
Attack the arguments (which seems easy) and NOT the posters.

Thank you

[KrazyHorse]

I'm through with him anyway, Ming.

[Kuciwalker]

.

[KrazyHorse]

I have the feeling that whatever you posted before seeing Ming's post was hilarious.

[Ming]

Back on topic folks...

[Kidlicious]

Originally posted by Ming
Attack the arguments (which seems easy)

Not easy enough for anyone yet.

[KrazyHorse]

Postulated: that the extent of regulation needed to prevent future domino financial collapses is to put a small tax on non-exchange traded derivatives.

Also postulated: that the extent of new regulation actually passed will be much bigger than this.

Finally postulated: such overregulation will increase the size of the financial services industry. "Regulation is a financial engineer's best friend".

[Kidlicious]

KH,

I'm not reading your posts anymore in this thread.

[KrazyHorse]

Fourth postulate: I'm not talking to you

[Kidlicious]

Money talks, .... something something.

Taleb's `Black Swan' Investors Post Gains as Markets Take Dive

By Stephanie Baker

Oct. 14 (Bloomberg) -- Investors advised by ``Black Swan'' author Nassim Taleb have gained 50 percent or more this year as his strategies for navigating big swings in share prices paid off amid the worst stock market in seven decades.

Universa Investments LP, the Santa Monica, California-based firm where Taleb is an adviser, has about $1 billion in accounts managed to hedge clients against big moves in financial markets. Returns for the year through Oct. 10 ranged as high as 110 percent, according to investor documents. The Standard & Poor's 500 Index lost 39 percent in the same period.

``I am very sad to be vindicated,'' Taleb said today in an interview in London. ``I don't care about the money. We're proud we protected our investors.''

Taleb's book argues that history is littered with high- impact rare events known in quantitative finance as ``fat tails.'' As the founder of New York-based Empirica LLC, a hedge- fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to bullet-proof investors from market blowups while profiting from big rallies.

Mark Spitznagel, Taleb's former trading partner, opened Universa last year using some of the same strategies they'd run since 1999. Pallop Angsupun manages the Black Swan Protection Protocol for clients and is overseen by Taleb and Spitznagel, Universa's chief investment officer.

``The Black Swan Protection Protocol is designed to break even 90 to 95 percent of the time,'' Spitznagel said. ``We happen to be in that other 5 to 10 percent environment.''

Options Strategy

The S&P 500 dropped 18 percent last week, its worst week since 1933, on concern that the credit crunch would cripple the financial system and trigger a global recession.

``We got a lot of giggles when we said we're targeting 20 percent moves,'' Spitznagel said. He and Taleb declined to confirm the investment returns listed in the documents, which were reviewed by Bloomberg News.

Taleb's strategy is based on buying out-of-the-money options -- puts and calls whose strike price is either lower or higher than the market price of the underlying security. A put option gives the buyer the right, though not the obligation, to sell a specific quantity of a particular security by a set date. A call option gives the right to buy a security.

The Black Swan Protection Protocol bought puts and calls on a portfolio of stocks and S&P 500 Index futures, along with some European shares. The Black Swan Protocol doesn't rely on commodities, currencies or insurance on bonds known as credit default swaps, Taleb said.

``We refused to touch credit default swaps,'' Taleb said. ``It would be like buying insurance on the Titanic from someone on the Titanic.''

White Swan

The Black Swan strategies are designed to limit losses to a few percentage points. Some investors did better than others depending on when they decided to lock in profits, Taleb said. The returns have enabled Universa to line up more money from investors in the next month, Taleb said.

As a trader turned philosopher, Taleb has railed against Wall Street risk managers who attempt to predict market movements. Even so, Taleb said he saw the banking crisis coming.

``The financial ecology is swelling into gigantic, incestuous, bureaucratic banks -- when one fails, they all fall,'' Taleb wrote in ``The Black Swan: The Impact of the Highly Improbable,'' which was published in 2007. ``The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup.''

Taleb said the current crisis is a ``White Swan'', not a Black Swan, because it was something bound to happen.

``I was expecting the crisis, I was worried about it,'' Taleb said. ``I put my neck and money on the line seeking protection from it.''

Taleb is angry that Wall Street is continuing to use traditional tools such as value at risk, which banks use to decide how much to wager in the markets.

``We would like society to lock up quantitative risk managers before they cause more damage,'' Taleb said.

To contact the reporter on this story: Stephanie Baker in London at stebaker@bloomberg.net

Last Updated: October 14, 2008 13:26 EDT

[Kidlicious]

Originally posted by Arrian
So I guess Krugman is stupid too?

-Arrian

Here's why Krugman is stupid too. This is a recent article where he talks about the threat of deflation and promotes his liquidity trap theory.

[i]Excess capacity? [theory of deflation]

To see why most economists have had a hard time taking this view seriously, consider the simple aggregate-supply aggregate-demand diagram ( Figure 1 ) that appears in virtually every principles text. What advocates of the simple excess capacity story seem to be saying is that the AS curve has shifted right, as illustrated in the figure. And this would indeed, other things equal, lead to a decline in the price level. But why should other things be equal? In particular, why couldn't the central bank simply increase the money supply, and in so doing shift the AD curve far enough to the right to prevent the deflation? And why wouldn't it do so? After all, the results of that expansion would be beneficial from all points of view: more output, more jobs, and more stable prices.

http://web.mit.edu/krugman/www/deflator.html

First, notice how he lumps himself with most economists, in stating that they use the AD-AS model to judge the value of this theory.

Then he says that this won't happen because central banks will lower interest rates to prevent deflation in this case. Well up until October 7th, maybe later, the Fed believed that there was still a threat of inflation. We can only hope now that they are concerned with deflation since oil prices have now dropped below $70/bbl.

At any rate, it isn't certain that pumping money into the economy would work anyway. Most of this excess capacity has been created in China which has claimed that it's trying to build it's domestic economy, but has been experiencing deflation already. The thing about deflation is that consumers stop spending money because they can buy goods cheaper in the future.

Also, the effect of the decrease in capacity spending in itself is going to cause deflation.