Quote of the Day

James Hamililton, commenting on Columbia Professor Richard Clarida's assesment of the financial meltdown, delivered at the monetary policy conference at the Federal Reserve Bank of Boston last week, says this, blowing a rather large hole in the hull of the efficent market hypothesis..

With the benefit of hindsight ... it seems clear-- at least to this author-- that the financial crisis and the credit and securitization bubble that preceded it resulted not only from spectacular failures in securities markets-- to allocate capital and price default risk-- but serious failures also as well by policymakers to adequately understand, regulate, and supervise these markets. Policymakers, academics, and market participants simply didn't know what they didn't know. They assumed that either it couldn't happen (after all, AAA securities 'never' default), or if it did, it would be systemically unimportant. Until the tide went out. But by then it was too late.

Market failure, inadequate regulation: sounds like something you might have heard from Krugman, or me.

Two graphs that Hamilton presents from Clarida's presentation are quite bubblicious.  Check them out.

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