A little bit of bliss in this ten minute talk by Prof. David Harvey, and his take on what’s happened in the crisis, what the various explanations are, and what we should do. Beautifully rendered by the people from RSAnimate.
Hope you enjoy it as much as I did :)
At least, that’s what I saw to my disappointment as I perused the £1,000 plus ($1,500+) Easter school being offered by the venerable Royal Economic Society this April. Last year they talked about Auctions and Markets – interesting, but this year they have gone for “credit, business cycle and finance”.
I am being overly harsh. If the whole thing was a big collection of theoretical Merton-Scholes / Fama financial-theory-is-fantastic-don’t-worry kind of thing there would be good reason to criticise them. I still remember Nassim Taleb’s call to boycott any business school that continued to teach portfolio theory in 2009. They still do teach that stuff, but some of the things slated for the Easter school isn’t all bad. There seems to be a focus on empirical work, at least in the recent working papers on the first lecturer (Princeton’s Prof. Hyon Shin) and a lot of his recent work looks at financial intermediaries. The second lecturer (also from Princeton, prof. Hirotaki) seems interested in empirics, but only to the extent that they fit into “theoretical models”, and an older (pre-crisis, 2007) paper of Prof Shin’s uses the assumption that traders use Value-at-Risk models and finds that this may amplify shocks to the system if traders are risk neutral. A second very timely paper of his and Gara Afonso showed, in October 2008 no less, that:
banks attempting to conserve liquidity cause an increase in the demand for intraday credit and, ultimately, a disruption of payments. Additionally, we find that when a bank is identified as vulnerable to failure and other banks choose to cancel payments to that bank, there are systemic repercussions for the whole financial system.
I think this sounds rather interesting actually, although how much of the course will be talking about exciting empirical results and research, and how much will be on theory remains to be seen. I don’t think we need to throw Taleb’s book at these people, but I am not going to throw a grand their way either. Hey, there’s a recession ending over here, (with 0.1% growth), no need to go nuts just yet.
