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by on April 19, 2010 at 1:19 pm in Web/Tech | Permalink

1 y81 April 19, 2010 at 2:12 pm

That is a good post by Krugman. He might have added that, not only was Lehman not particularly big, but the Reserve Fund was tiny, and the money market fund industry generally is highly fragmented, yet it was the threat of runs on those entities, of the consequent collapse of the commercial paper market, and the consequent insolvency of most American business corporations, that brought us to the abyss.

2 skeptic April 19, 2010 at 2:56 pm

So Krugman has adopted the Gary Gorton idea of a shadow banking run. Indeed, as a non-economist this seems like the best explanation to me. Much better than the moralizing from the populists of various sorts on right and left. Its a useful reminder of what a clear writer and thinker Krugman can be when he’s not gratuitously bashing opponents.

Lets hope that something good comes from the temper tantrum throwers on Capitol Hill, republicans should remember that the health care bill became much worse after they decided to just oppose it.

3 Marty April 19, 2010 at 3:13 pm

Canadian Fiscal Reform under the Cretien government was
largely a response to the Reform Party platform which was
anti big government. The liberals stole their thunder by adopting
large parts of their platform for fiscal reform. Interesting
parallels with the “Tea Party” and Reform Movement in Canada.

It is also interesting that the Liberals rule from
the centre and are not a principled based party. Liberal party lessons in
real politics should not be wasted on the US. When threatened by
the right the liberals steped to the right fiscally to maintain power.
The Canadian electorate was ready for the cutbacks and already
supported them to a great extent.

This is just my perspective on what happenned.

4 FYI April 19, 2010 at 4:05 pm

I don’t understand why Tyler continues to pretend that Krugman is a ‘serious’ economist. I mean, I don’t even think Krugman considers himself a serious economist anymore. Just look at the number of times he mentions politics in this linked article. Krugman should start his bid for a talk show on MSNBC and go from there.

5 Floccina April 19, 2010 at 4:43 pm

#2 Interesting, if it was the shadow banking sector that caused the crisis why didn’t someone (Soros, a big bank with a good balance sheet) attack them earlier? They could have shorted them and then tried to get a run going. I guess that they looked weak to too few people.

6 Doc Merlin April 20, 2010 at 3:50 am

Um, we didn’t have a bank run. Seriously. What happened was the FASB changed the accounting standards and suddenly all the banks were on paper legally undercapitalized. They were forced to sell assets to gain capital at the same time. This dropped the value of their assets, which because of mark to market, required them to sell more and more. Eventually banks started collapsing.

There was no actual bank run, just an accounting change which resulted in a panic.

7 Andrew April 20, 2010 at 6:22 am


I was harping on that every day it seemed two years ago. I’m not sure if it is still valid, but the only government action Krugman can come up with is the CRA. “Nothing to see here!”

Which brings me to the fact that I spent all night thinking about Krugman. And no, it wasn’t a pleasurable experience. I decided what irritates me about him is that he will always take the best argument on his side and match it up against the worst, probably already parodied argument on the other side. Two things. First, he gets away with it because he is only writing for his sycophantic fanboys. Second, in the age of the internet he doesn’t have to do this.

8 Andrew April 20, 2010 at 7:16 am

And furthermore, I don’t even agree with Krugman on CRA. CRA is at least a symptom of the underlying problem that money should be free as long as there is a snowball’s chance it will be paid back in nominal terms no matter how much The Fed might debase the intrinsic value. Why does Krugman harp on CRA when he could talk about Greenspan, Fannie and Freddie, et. al.? It’s as if he doesn’t want anyone to know that the problem involved home loans in any way.

9 Ryan Vann April 20, 2010 at 9:11 am

“That’s a bank run!”

No, that is most certainly not a bank run, which has to do with depositors drawing their funds from banks.

10 Candadai Tirumalai April 20, 2010 at 9:26 am

“How Germans interview their bedridden
leaders” is one of the most curiosity-
arousing captions I have come across.
The hospitalization of a leader after
surgery: the hospitalization of whole
economies. Wheelchairs everywhere.

11 zayıflama April 22, 2010 at 8:03 am

financial tools. Government created the systemic risk and allowed the opacity in the formation of the underlyings. As long as the underlyings are understood, even high risk mortgage pools can be properly priced.

Not everyone should own a house! It

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