tag:blogger.com,1999:blog-2830084253401570472.post3287901866346709105..comments2024-03-28T09:22:36.967+13:00Comments on Offsetting Behaviour: Contagion riskEric Cramptonhttp://www.blogger.com/profile/15831696523324469713noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2830084253401570472.post-80702716044845210102012-10-03T01:26:11.214+13:002012-10-03T01:26:11.214+13:00I'm quite shocked in a way. Here is a parent w...I'm quite shocked in a way. Here is a parent who actually gets his little girls to eat parsnips and broccoli on the promise they can see Hayek on TVpeterquixotenoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-65747091736696500172012-10-02T22:34:44.813+13:002012-10-02T22:34:44.813+13:00Separating equilibria can be efficient.Separating equilibria can be efficient.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-82437242092892058162012-10-02T19:09:54.429+13:002012-10-02T19:09:54.429+13:00"Eye of the Tiger" for economists. "..."Eye of the Tiger" for economists. "Who Let the Dogs out" for normal people :)dragonflynoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-4176500947906325242012-10-02T16:33:24.642+13:002012-10-02T16:33:24.642+13:00I'm going to keep walking around reading thing...I'm going to keep walking around reading things and updating my priors - then one day my beliefs should match reality right ;)<br /><br />The decline in asset quality occurred largely before the failure of Lehman brothers - I've always found the view that it was seen as a "removal" of the presumed lender of last resort that set off the panic in mid-Sep, and saw CDS's spike. I like that story, as it fits with the current narrative of the ESDC - but as more data becomes available, and more research is done such as this paper, I can form better informed views ... so looking forward to that at least.Matt Nolanhttp://tvhe.co.nz/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-77841613001962143552012-10-02T16:27:59.309+13:002012-10-02T16:27:59.309+13:00The failing firms all did the same stupid thing: i...The failing firms all did the same stupid thing: invest too much in dodgy housing assets. The Hellwege paper puts some weight on the informational story around the market drops: after the failure, people saw that the housing assets were crap and started looking more at which other firms had too much exposure to that sector. As for precise timings, I'm totally going to wave my hands - I would need to spend two days reminding myself, and I'm in the aforementioned grading hell currently.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-74555951259010929982012-10-02T16:22:36.950+13:002012-10-02T16:22:36.950+13:00Damn, I'm totally playing that for the kids! ...Damn, I'm totally playing that for the kids! Didn't think of it until now... Thanks Eric.Todd Kuipersnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-23667663522809525612012-10-02T15:44:02.339+13:002012-10-02T15:44:02.339+13:00Interesting for sure.
However, it still leaves op...Interesting for sure.<br /><br />However, it still leaves open the question of why we saw global economic activity fall sharply following the failure. And also why we saw the implied risk of failure of financial institutions via CDS's rise so sharply, and continue to rise until March 09.<br /><br />For example instead of taking the main view that it was a failure of our lender of last resort which lead to an excessive chance of bank failures, I could imagine a different story than the current primary view that states that financial institutions should have a sizable chance of failing, and as a result the change in pricing was merely telling us that risk was being priced too low beforehand - and projects were taking place that shouldn't have been NPV positive. After all, the CDS's prior to the crisis were premised on a belief in central banks being a lender of last resort.<br /><br />The one thing that is obvious is that, as long as we have a central lender of last resort - the conditions for failure, bailouts, and any payment for the implied "insurance" are all questions that need to be answered clearly.Matt Nolanhttp://tvhe.co.nz/noreply@blogger.com