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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] UCLA's Colloquium on Global Economic Crisis - synopis
  • Date: Mon, 17 Nov 2008 20:40:29 -0800 (PST)

I borrowed this from tonight's Survivalbog. It is a letter wriiten by
someone who attended this colloquium...


------------------------------------------------------------------------


Letter Re: UCLA's Eye-Opening Colloquium on the Worldwide Financial and
Economic Crisis

Hi,
Yesterday [Friday. November 14, 2008] I attended the Marschak Colloquium on
Mathematics in the Behavioral Sciences at UCLA {University of California, Los
Angeles] . This thing is attended by lots of UCLA and USC [University of
Southern California] economics professors, including many retired faculty
members and other local luminaries. (Two seats to my right was author Alvin
Toffler of "Future Shock" fame.)

The main speakers presented for an hour, and then the whole group asked
questions and discussed the topic. Here is the brief abstract that announced
the talk: "The current worldwide financial and economic crisis is the
greatest economic challenge we have faced since the Great Depression. The two
speakers will treat the crisis in the light of historical experience, will
identify some of its causes, and will consider possible policy initiatives at
the national and international level to treat it."

The topic was "The Current Worldwide Financial and Economic Crisis." I
expected it to be an interesting, balanced, reasoned and academic view of the
current bumps in the road, with some modest suggestions for improving
matters. Wow! It was all very reasoned, and there was even a little bit of
mathematical modeling, but these people are very very concerned!

The immense set of interlocking derivative bets made by the big banks is now
acknowledged as a complete house of cards, and one that is currently
collapsing! (The second speaker made suggestions about policy moves that
could be taken "if officials somehow miraculously stop the process in
mid-collapse.")

The whole two hours was fascinating, but here are a few of the ideas and
comments that I came away with:

• This is the first global crisis of the globalized world. Likely every
country will be affected and all at about the same time. (Very different from
[the economic crisis of] 1929-1937.)

• The causes were many: lax regulation, lax credit reviews by rating
agencies, securitization of mortgages, insane(!) investment leverage,
pressure for continuously increasing financial profits, herd behavior,
deregulation, ....

• Many financial institutions would be immediately bankrupt if the were
forced to value assets at current market prices. (Instead, everyone has
agreed to claim that "certain markets are frozen." The regulators wink.)

• Deleveraging is essential to the survival of these institutions. But most
deleveraging actions actually lower all institutions' capital bases. So it's
a self-reinforcing positive feedback cycle. Serious deflation is a genuinely
possible outcome. For the first time in our lives, money could become more
valuable over time, rather than less.

• On the other hand, most Latin American currency crises began as fiscal
crises. Government frantically created money to prevent deflation, and
eventually they got hyperinflation. This, too, could happen here.

• A former vice president of Citicorp was in the audience. He said that the
explosion in derivative instruments ran far ahead of infrastructure (markets
for trading them, etc.) and far ahead of legal frameworks. He said we haven't
even seen the beginning of the counterparty problem.

• An economist from USC in the audience said that we will soon have huge,
massive unemployment in the U.S.

• What will happen next (even what could happen next) is unknown. A Swedish
economist in attendance said: "Dispense with the illusion that you understand
what is happening."








  • [Homestead] UCLA's Colloquium on Global Economic Crisis - synopis, bob ford, 11/17/2008

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