That is a new paper by Isil Erel, Taylor D. Nadauld, and Rene M. Stulz, and it is one of the more instructive papers on the financial crisis:

We estimate holdings of highly-rated tranches of mortgage securitizations of American deposit-taking banks ahead of the credit crisis and evaluate hypotheses that have been advanced to explain these holdings. We find that holdings of highly-rated tranches were economically trivial for the typical bank, but banks with greater holdings performed more poorly during the crisis. Though univariate comparisons show that banks with large trading books had greater holdings, the holdings of highly-rated tranches are not higher for banks with large trading books in regressions that control for bank size. The ratio of highly-rated tranches holdings to assets increases with bank assets, but not for banks with more than $50 billion of assets. This evidence is inconsistent with explanations for holdings of highly-rated tranches that emphasize the incentives of banks deemed “too-big-to-fail”. Further, the evidence does not provide support for “bad incentives” theories of holdings of highly-rated tranches. We find, however, that banks active in securitization held more highly-rated tranches. Such a result can be consistent with regulatory arbitrage as well as with securitizing banks holding highly-rated tranches to convince investors of the quality of these securities. Our evidence supports the latter hypothesis.

In other words, it was not “too big to fail moral hazard” and it also was not venal corporate incentives.  It was possibly some regulatory arbitrage but also just plain, flat stupidity and complacency.

Mulligan writes:

There is still no evidence to confirm the fundamental Keynesian proposition that supply doesn’t matter.

Oddly, for all of his apparent skepticism of Paul Krugman, Mulligan is completely suckered on this one.  This is Krugman’s current version of Keynesian economics (and even then only sometimes), not Keynesian economics more broadly construed.  There is nothing in the (very useful) data cited by Mulligan, in his posts on supply and employment, which runs against the Keynesian story.  Of course I am a fan of the blogosphere, but sometimes it frightens me when I see it having influence over research interpretations.  We’re just a small number of apes sitting at computers, relative to the overall literature.  When it comes to Keynesian economics, I don’t always see us apes as reflecting the broader literature very well, yet we are read by a relatively large number of apes.  We can expect this problem to get worse, as people learn the “blogosphere versions” of different points of view.  Karl Smith comments.  And, as you might expect, Scott Sumner makes perfect sense.

MR commentator Donald A. Coffin posts on the wage stickiness issue:

There is, as it turns out, some actual research on this issue in the job search literature. The bottom line is that reservation wages appear to fall relatively quickly with duration of unemployment. One common conclusion is that wage stickiness comes from the behavior of *employers.* Some citations:

“Reservation Wages, Offer Wages, and Unemployment Duration–Some New Empirical Evidence” http://ideas.repec.org/p/kie/kieliw/1095.html The authors conclude that offer wages fall faster than do reservation wages (not that reservations wages do not fall).

“The Relationship Between Unemployment Spells and Reservation Wages as a Test of Search Theory,” by Stephen R. G. Jones, QJE, V. 104, N. 4, 1988. “…the main finding is that reservation wages play a significant role in the determination of duration.”

“Short-Run Equilibrium Dynamics of Unemployment, Vacancies, and Real Wages,” by C. A. Pissarides, AER, V. 75, N. 4, 1985.

“Efficiency Wage Models and Unemployment,: by J. L. Yellen, AER, V. 72, N2., 1984. The stickiness of wages is attributed to the reluctance of *employers* to reduce wages.

“Unemployment, Wage-Setting, and Insider-Outsider Relationships,” by A. Lindbeck, AER V. 76, N. 2, 1986. The stickiness of wages is again attributed to the reluctance of *employers* to reduce wages.

“Wage Dynamics: Reconciling Theory and Evidence,” by O. Blanchard and L. Katz, http://www.nber.org/papers/w6924 1999. “In this paper, we ask whether one can reconcile the empirical evidence with theoretical wage relations. We reach three main conclusions. First, we derive the condition under which the two can indeed be reconciled. We show the constraints that such a condition imposes on the determinants of workers’ reservation wages as well as the relative importance of workers’ outside options as opposed to match specific productivity in wage determination. Second, in the light of this condition, we reinterpret the presence of an “error correction” term in macroeconomic wage relations for most European economies but not in the United States. Third, we show that whether this condition holds or not has important implications for the effects of a number of variables — from real interest rates to oil prices to payroll taxes — on the natural rate of unemployment.”

“An Empirical Test Job-Search Model, with a Test of the Constant Reservation-Wage Hypothesis,” N. Keifer and G. Neumann, JPE, V. 87, N. 1m 1979. “Reservation wages are found to decline significantly with duration.”

“An Econometric Analysis of Reservation Wages,” by T. Lancaster and A. Chesher, Econometrica, V. 51, N. 6, 1983. Their table A-IV clearly shows reservation wages falling with duration of unemployment, from 21.28 pounds per week for durations less than 13 weeks to 17,74 pounds per week for durations exceeding 52 weeks,

I could go on, but go to Google Scholar and search on “reservation wages and duration of unemployment” if you want more.

If the employers don’t want you at the high wage, and don’t want you at the low wage, what might your perceived MP be, temporarily or not?  Keep in mind, firms are flush with cash.

He was known to be a very fine man and a true and curious scholar.  Here is his Wikipedia page:

Warren Joseph Samuels, (born 1933, New York City, (died 2011, Gainesville, FL) was an American economist and historian of economic thought. He received a BBA from University of Miami, Miami, FL and obtained his Ph.D. from University of Wisconsin–Madison. After holding academic posts in the University of Missouri, Georgia State University, Atlanta, and University of Miami, he was appointed Professor of Economics in Michigan State University in 1968, where he stayed until his retirement in 1998.

Warren Samuels has made many extremely valuable contributions to the history of economic thought and the methodology of economics. His work has been inspired primarily by his “…interest in generating greater clarity as to the economic role of government both in the history of economic thought and in contemporary economics”.^[1]

Here is his home page, and here he is on scholar.google.com.  I think of him as one of the economists who kept alive institutionalism, economic method, and history of thought as intellectually vital disciplines.

Addendum: Peter Boettke pens a fine appreciation.

Texans have less than half the household debts of Californians, and 28 percent less than the national average, according to the Federal Reserve Bank of New York.

…Low debt levels do not necessarily make Texans better credit risks, however. Texas has the nation’s second-lowest credit scores. (Mississippi ranks last.) On a scale of 500 to 990, Experian says the average Texan’s score is 717. The national average is 749.

The lower score is due mainly to a history of late loan payments.

…Dana Johnson, chief economist with Dallas-based Comerica Bank, said lower unemployment and lower overall household debt should still make it easier for Texans to spur economic growth.

“Typical Texas workers are carrying less debt because they don’t have to – house prices are relatively modest,” he said.

“If Texans are less burdened with debt, it’s all the easier for them to make an acquisition of something like a car or some other durable purchase. I don’t think there’s any question,” Johnson said.

…Average mortgage debt in Texas is $23,999.

Here is the link, the question was posed by Ezra Klein on Twitter.