Steve Keen's Debtwatch

There’s an inter­est­ing sto­ry in the New York Mag­a­zine by Michael Osin­s­ki–the author of the main soft­ware pack­age used to cre­ate the CMOs and CDOs that have helped crip­ple the finan­cial sys­tem.

Osin­ski’s sto­ry is worth a read in its own right. But what I found curi­ous about it was that he appears unaware of a flaw that exist­ed in those prod­ucts from the outset–the pre­sump­tion that the stan­dard math­e­mat­ics of risk and return could be applied to finan­cial assets. He does­n’t even men­tion this top­ic, but state­ments like the fol­low­ing imply that his soft­ware used a stan­dard prob­a­bil­i­ty dis­tri­b­u­tion to cal­cu­late risk and return for a giv­en bond:

I’m still hav­ing dif­fi­cul­ties get­ting my pod­casts up and run­ning at the moment, so in lieu here is a link to the ABC Radio Nation­al Big Ideas record­ing of an Evatt Foun­da­tion forum on the Glob­al Finan­cial Cri­sis.

Speak­ers were Bernie Fras­er, ex-Gov­er­nor of the Reserve Bank of Aus­tralia, myself, and Gar­ry Weiss, a cor­po­rate lawyer (this is also the speak­ing order).

The whole of the most recent Real World Eco­nom­ics Review (for­mer­ly known as the Post-Autis­tic Eco­nom­ics Review) is devot­ed to the ques­tion of “How should the col­lapse of the world finan­cial sys­tem affect eco­nom­ics?”.

My paper, which led vol­ume 49, is repro­duced below. If you’d like to read the entire vol­ume, click here for the online ver­sion and here for the PDF. You can also go here for back issues, and to sub­scribe for free.

The most impor­tant thing that glob­al finan­cial cri­sis has done for eco­nom­ic the­o­ry is to show that neo­clas­si­cal eco­nom­ics is not mere­ly wrong, but dan­ger­ous.

This is a face­tious way of let­ting you all know that, as of about 5 min­utes ago, there are now 1,000 users (plus yours tru­ly) sub­cribed to this blog.

The aver­age dai­ly unique read­er­ship count is cur­rent­ly 5,500, which I believe implies rough­ly 3–5 times that many read­ers on a month­ly basis.

I also know from feed­back from jour­nal­ists and oth­er cor­re­spon­dents that the com­ments made here are read and appre­ci­at­ed by a very wide audi­ence. My posts might be the ful­crum, but the con­tri­bu­tions from you all keep the wheels well and tru­ly spin­ning. I’ve also learnt a lot from what has been post­ed here.

The First Home Own­ers Boost (as it is offi­cial­ly known) has cer­tain­ly giv­en the Gov­ern­ment bang for its buck. By spend­ing rough­ly $200 mil­lion of its own mon­ey to date, it has added about $3 bil­lion to the hous­ing mar­ket. But the addi­tion­al $2.8 bil­lion has come from increased mort­gage debt tak­en on by those most vul­ner­a­ble to a seri­ous eco­nom­ic down­turn, at a time when the lat­est “unex­pect­ed” increase in unem­ploy­ment indi­cates that, like it or not, the glob­al down­turn is com­ing our way.

James Gal­braith has writ­ten a very good analy­sis of the cri­sis and why the poli­cies being fol­lowed in the USA (and, by impli­ca­tion, here) will not work.

I repro­duce some extracts here to give you a flavour of the arti­cle, but I rec­om­mend a read of the full paper in the Wash­ing­ton Monthly–thanks to blog mem­ber War­ren Raft­shol for bring­ing it to my atten­tion. The empha­sis added to some points is mine.

A new high per­for­mance hybrid car has recent­ly been released by a Ror­ing Motors, Inc. Accord­ing to Man­ag­ing Direc­tor Rory Robert­son, the new “GoFlow­Mo­bile” ™© achieves unpar­al­leled per­for­mance for a hybrid car, by apply­ing a sim­ple insight from eco­nom­ics to the hide-bound world of engi­neer­ing.

Mr Robert­son, an econ­o­mist, took over the firm in a hos­tile pri­vate equi­ty bid, because he saw an oppor­tu­ni­ty to bring eco­nom­ic think­ing to bear on the vexed issue of design­ing the world’s fastest hybrid car.

Bnet Aus­tralia has just post­ed an inter­view with me by Phil Dob­bie.

The inter­view is linked here, and I’ve also tried to post it to my pod­cast feed using a new Word­Press plug in.

Can sub­scribers to the Debt­watch pod­cast please let me know whether this turns up in their iTunes, etc.? I don’t get any con­fir­ma­tion of whether the post­ing suc­ceeds or not.

I’ve also embed­ded the talk here, so if you’d like to hear the inter­view ASAP, click below. The top­ics are the usu­al sus­pects: whether we’re going to expe­ri­ence a reces­sion (no, it’ll be a Depres­sion), why neo­clas­si­cal econ­o­mists and the RBA in par­tic­u­lar got it wrong, and so on.

Jon Stew­art at “Com­e­dy Cen­tral” put togeth­er a mas­ter­ful rip into the stock mar­ket spruik­ers on the CNBC net­work, expos­ing how their so-called exper­tise was lit­tle more than a blind exhor­ta­tion to join in the euphor­ic excess of the bub­ble, and to keep it alive as it died an inevitable death.

It’s both infor­ma­tive and very amus­ing. Click here to watch it.