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.

In that we have the Paradox of Thrift, and so enter the son, ‘a young jew’, preaching that we must spend more, not less. The economy is not some vengeful omnipotent being but is based on faith:

The full episode is great fun, and you can watch it (legally) in installments here [1, 2, 3]. But one last thing has to be mentioned. In dealing with the credit crunch, Stan – another boy – tries to return a blender bought on credit, eventually ending up at the US Treasury who owns the bad debt. The Treasury agrees to refund him, and goes off to value the blender… This is beautiful:

It reminds me of the Treasury spokes-person, who on the 23 September 2008 explained where they had gotten the $700 billion initial bail-out figure from: “It’s not based on any particular data point, we just wanted to choose a really large number.” Lovely.

from the library

In a search for documents I have come across the Franklin Delano Roosevelt Library and Museum in New York  State, which has a lot of archival material for anyone working on war policy, the New Deal and the 1929 depression but also offers a copyright-free archive of pictures from the period.

Not all their Pictures, images, videos and text are available on-line, but a good portion can be accessed directly and can make for a nice addition to any lecture / talk / paper on the period or its people.  And you can get 1,000 pictures of FDR and his wife, 500 Great Depression and New Deal Photos, as well as 500 WWII and Lend-Lease images, and lots of  sound or video from the period.

An amazing ressource for the on-line researcher, and of course for anyone who has access to the actual library.

Mandelbrot, of chaos theory,  butterflies-to-tornadoes and fractal fame, came up with a beautiful explanation of the problem that haunts the weather forecast and economic forecasters – but with some extra bad news for the economists.

The basis of weather forecasting is looking from a satelite seeing a storm coming, but not predicting the storm will form. The behaviour of economic phenomena is far more complicated than the behavior of liquids or gases

At least the focus of our economic enquiry might now shift – lets find out what causes the storms to form and the economy to act, not try and predict the outcomes.

You can see the whole interview here:

Is it that bad? I don’t know – but no-one really does. That being said, Taleb has a very good point when he argues that our over-efficient mega-banks do two things, they reduce the odds of a crisis, but when crisis strikes it is much much worse.