Financial Stability News

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Reading-list on the financial crisis

Gorton and Metric has just submitted a review (for the Journal of Economic Literature) on the essential readings about the financial crisis. They start with this observation:

The first financial crisis of the 21st century has not yet ended, but the wave of research on the crisis has already exceeded any single reader’s capacity, with the pace of new work only making this task harder. Many professional economists now find themselves answering questions from their students, friends, and relatives on topics that did not seem at all central until a few years ago, and we are collectively scrambling to catch up.

Some would argue that these missed topics have been around for years, and that they in fact was the centerpiece of the theories to Keynes and Minsky, just to name two.

For an overview of those that saw the crisis coming, you can read these two short blogs, from Matias Vernengo from Utah University and Gerald Epstein from University of Massachusetts – Amherst. They both give a nice overview and a different perspective.

Epstein reflects on why mainstream goes from crisis to crisis without learning, and notes that

As Economist Phil Mirowski pointed out to me, the problem is that, like the protagonist in the movie Memento , who has no memory but is trying to solve the mystery of his wife’s murder, and has to remind himself every minute about what happened the minute before by writing notes and even tattooing himself , mainstream macro-economists’  write themselves articles and books after every crisis and they then promptly forget what they wrote (no tattoos as far as I know).

A good illustration of this effect is the latest speech (very good one) by deputy governor in Bank of England Paul Tucker, who readily admits that the lessons he and Mario Draghi learned after the Asian crisis (and wrote down in a report then), that balance sheets matters and should be closely monitored, was forgotten and need to be re-learned. At least he is honest enough to admit it.

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