It may not be a substantive issue, but like spellchecking and punctuation, it's a simple thing to check to keep your audience.

Credit where credit is due: Yves is one of the most respected voices in the finance-o-sphere, and her blog was on one of the lists I've been pestering the bhtv staff with. Tip of the hat, guys.

Wow! Many thanks to Yves and Megan. I can't remember feeling quite so wigged out. Megan sat there with a smile on her face, kind of, as Yves proposed a Manhattan project for US banks. Never, ever going to happen. Yves could be right/wrong. Her grasp of this material is so far above my modest understanding all I can say is thanks and HOLY CRAP!. Megan deserves a big round of applause for staying focused and for organizing the information into bite-size pieces. I'll take Yves word for the urgency of the problem. I expect her sober warnings about kicking the can down the road are spot-on. I do know that Asia is on board for a successful bail-out plan because China and Japan have so much money tied-up in the US and because both want to export to the US. Car exports to the US are already down. So, we haven't hit total panic time, yet, IMHO. Yves point about determining value is pretty much the same as Dan Drezner's. Don't have a link, but a pal who follows this closely told me of a frightening interview months ago with a Bank of Canada high-up who claimed it

Quoting AngryOrioles: I'm sorry, but I just don't get it.
I have no idea what these two intelligent and articulate diavloggers are talking about...

I'll bet your Congressional representatives don't either. Wikipedia is actually pretty good on this kind of stuff, but be prepared for a little tough sledding in places.

I thought that with the new video format, the old audio problems had been eliminated, but this diavlog was a return to the bad old days of muffled, unbalanced, audio. I found myself missing important points of the discussion because I was busy fiddling with my audio controls, trying to overcome the lousy audio feed.

Note: McArdle is not an economist. She's a libertarian ideologue. They often think that makes them economists, but it doesn't.

Assume that housing prices fall another 10-20%. Is it better for the economy as whole if the Federal government takes this loss on the mortgages or is it better for the banking system to take the loss? Or does it matter? Because that is what Paulson is in effect saying: the government should take the loss and not the banking system. I ask this independent of the moral hazard question.

I don't see how everyday regular folks (those without PH.D.'s in economics from elite universities) are going to understand this obtuse jargon. It smells, feels, and looks like a bailout for the rich and I don't see how that perception will be changed by all the talking heads including the 2 presidential candidates. John

Quoting AngryOrioles: I'm sorry, but I just don't get it. I have no idea what these two intelligent and articulate diavloggers are talking about...

Quoting Namazu: I'll bet your Congressional representatives don't either.

There comes a point, from a public policy perspective, where obscurity and complexity become prohibitive in and of themselves. There's probably no more than a low 5-digit number of people on the planet that can even fake an understanding of credit derivatives, yet those gizmos have apparently brought us to the brink of a global depression. This diavlog was interesting, and I don't mistrust anything these two have to say, but it was all a bunch of insider palaver. (I'm hard to please. I was pissed at the Drezner/Wright diavlog for breezing past financial issues and instead bullshitting about presidential campaign tactics, and I'm less than pissed - annoyed, I guess - at this one for not making some policy prescriptions.) It should be possible to identify which financial/accounting mechanisms and transactions caused this problem, and to regulate them out of existence. I'm not satisfied saying, let's make everything transparent and then the market will take care of if all. Also, saying let's have a financial Manhattan

Quoting zookarama: I thought that with the new video format, the old audio problems had been eliminated, but this diavlog was a return to the bad old days of muffled, unbalanced, audio. I found myself missing important points of the discussion because I was busy fiddling with my audio controls, trying to overcome the lousy audio feed.

you mean you actually want to hear what megan mcardle has to say?

Quoting nikkibong: you mean you actually want to hear what megan mcardle has to say?

rimshot!

Derivatives aren't that hard to describe. They're only a little more complicated than options. The thing is that they're not standardized. A lot of them (I wish I knew how many) are written completely ad hoc. That's part of the charm for the Wall St. firms that sell them -- they can totally rip off the buyers. Here's a great book about them, written ages ago: Fiasco: The Inside Story of a Wall Street Trader by Frank Partnoy
http://www.amazon.com/Fiasco-Inside-.../dp/0140278796 And a PDF worth a skim: http://www.investinginbonds.com/asse...erivatives.pdf

This bugs me. A lot. I understand this stuff well enough, without the benefit of a PhD, an MBA, or Wall Street experience. Frankly, it's no more difficult than --- let's say --- U.S. foreign policy in the Middle East, and my guess is that you would say that a passing understanding of U.S. foreign policy is important to being informed. The fact is, most educated people simply don't find this stuff interesting enough to learn even the basics. And they're almost offended that it matters so much. But it does. It always has, of course, but now people are noticing. What I would to like to ask you is, How do you propose to regulate finance intelligently without understanding it? Even if you could identify all the existing holes and patch them up, how would you know where the new holes are going to be? This is ridiculous. The educated people in this county need to understand this stuff; pundits need to understand it; and we need to demand that our elected representatives do, too. This is what we try to do with everything else that matters. Why should finance be an exception?

Quoting Anyuser: There comes a point, from a public policy perspective, where obscurity and

It seems like Ms. Smith appeared on Bloggingheads simply to vent. Not that I blame her, but it made the discussion hard to follow. I believe complicated topics like this one are better addressed when one of 'heads isn't an expert in the field and is happy to play dumb and ask basic questions (i.e. what is commerical paper? Why is it used and why should I care? How does this relate to bad loans?) The Kling dialog was great because Will was happy to appear clueless (whether he was or not.) Megan does a good job on her blog explaining how the average person might be affected by a non-bailout, but she missed a great 60 minute opportunity to remedy a lot of the ignorance she bemoans.

Quoting typop: The educated people in this county need to understand this stuff; pundits need to understand it; and we need to demand that our elected representatives do, too.

I guess that's what I would call an appreciable level of the citizenry. Anecdote: I have a friend who worked at Goldman Sachs for fifteen years, specializing in mortgage backed securities. She left Goldman in 2002. I asked her to explain what was going on and she said she couldn't really say, because a lot of the credit derivatives and hedge fund activities that are causing problems today had not been concocted in 2002. She further said that what goes on in hedge funds and in a huge portion of the credit default swap market isn't intended to be seen or understood. When Bear Stearns cratered Paulson, Bernanke, Robert Rubin, and a zillion other people who I think should have understood the situation confessed to not fully understanding the derivative market or the consequences of letting Bear Stearns go under. In newspapers like the NY Times and the WSJ and (less so) the Financial Times business reporters refer to the "obscure" CDS market, or the impenetrable hedge fund industry. The credit

Couple of points: 1) There's something extremely important at stake here, which Yves talked about and which I outlined in the comments under the Kling interview, namely whether Treasury should buy distressed assets or just inject liquidity into the banks (I'm simplifying a little). This may sound like a quibble, but I urge you to follow the link I provided to see that it's not. A very interesting question is why Paulson only put one option on the table and a loaded gun to the head of Congress. My personal feeling (based on no special knowledge) is that we're going to be taking substantial assets off the hands of a foreign bank or banks, and that the current bill allows this to happen with minimal pushback. Time will tell. 2) You're quite right to denounce the complexity of the shadow banking system. It was clearly a major cause and/or enabler of this crisis. Now a lot of this will go away by itself, and a lot of "no-brainer" regulations will come to pass. The big challenge is to anticipate what the next bubble is going to look like and head it off

Quoting claymisher: And a PDF worth a skim:http://www.investinginbonds.com/asse...erivatives.pdf

Thanks for this link.

Quoting kidneystones: The Clintons might have been able to manage this, but Dems have chosen 'hope' over experience.

Prepare for impact.

Dead wrong on that one KS, Corporate Dems like the Clintons sold out to wall street just like the republicans did - and that is a big part of why we are in this mess. Progressive Dems and hardcore, wingnut libertarian republicans are the only ones with any claims to being on the right side of the issues here. wasn't it Clinton that signed the repeal of Glass/Steigal? Clinton was no better than Reagan/Bush I/Bush II in gutting regulations and castrating regulators. have a good day, -Z

Quoting zookarama: I thought that with the new video format, the old audio problems had been eliminated, but this diavlog was a return to the bad old days of muffled, unbalanced, audio. I found myself missing important points of the discussion because I was busy fiddling with my audio controls, trying to overcome the lousy audio feed.

There's only so much any software can do to overcome the laws of physics. Smith was simply sitting too far away from the microphone in a noisy environment. Headsets may be unsightly and uncomfortable, but there is really no reliable alternative outside a professional sound stage.

pk writes...[..] Your cruddy reading skills and desire to score political points at all cost make your comments here virtually worthless on topics of ordinary complexity. My post isn't about getting into the mess but getting out. Both political camps are knee-deep in this muck. I'm not aware of a single non-partisan expert who believes otherwise. Rescuing and restructuring the finance/banking/securities industry will be done by major-league wonks. I'm not sure how much of the latter part of this discussion you actually watched or understood, but both Megan and Yves listed a number of reasons why the majority of economists/analysts signed off on the efficiency model. Many of the same will likely be consulted on building the 'safety' model. See Yves' Manhattan project comment. As for your inane remark that 'libertarians' and 'progressives' had this right, I couldn't disagree more, and ordinarily wouldn't waste my time explaining why. Hint: yours is a 'broken-clock' analogy if there ever was one. Neither of the two available candidates can be characterized as 'progressive' or 'libertarian'. You make my point, not your own, not that it matters much. The big issue is that the best people are now, thanks to the

Meghan seemed to be surprised that there are people opposed to the bailout without understanding financial markets. That most people don't understand financial markets isn't even worth pointing out. The real story here is that this administration has very, very little credibility. People hear, "financial meltdown" and they think "weapons of mass destruction." This is an instructive moment when one can see why it's important for an administration not to lose the trust of the public, and the Bush admin has certainly lost the trust of the public.

Quoting jmoe: Meghan seemed to be surprised that there are people opposed to the bailout without understanding financial markets. That most people don't understand financial markets isn't even worth pointing out. The real story here is that this administration has very, very little credibility. People hear, "financial meltdown" and they think "weapons of mass destruction." This is an instructive moment when one can see why it's important for an administration not to lose the trust of the public, and the Bush admin has certainly lost the trust of the public.

With one notable exception, I might add, we trust them to fail spectacularly, and in an historically unprecedented manner.

God created Bloggingheads for discussions like this. Stuff this episode and put it on the wall.

Quoting Furcifer: There's only so much any software can do to overcome the laws of physics. Smith was simply sitting too far away from the microphone in a noisy environment. Headsets may be unsightly and uncomfortable, but there is really no reliable alternative outside a professional sound stage.

Exactly. Any time people use the mike on their laptop, it picks up all the ambient noise in the room and the echo of the voice bouncing off the walls. The mike needs to be in front of their mouth.

Quoting kidneystones: pk writes...[..]

Your cruddy reading skills and desire to score political points at all cost make your comments here virtually worthless on topics of ordinary complexity. My post isn't about getting into the mess but getting out. Both political camps are knee-deep in this muck. I'm not aware of a single non-partisan expert who believes otherwise.

Rescuing and restructuring the finance/banking/securities industry will be done by major-league wonks. I'm not sure how much of the latter part of this discussion you actually watched or understood, but both Megan and Yves listed a number of reasons why the majority of economists/analysts signed off on the efficiency model. Many of the same will likely be consulted on building the 'safety' model. See Yves' Manhattan project comment.

As for your inane remark that 'libertarians' and 'progressives' had this right, I couldn't disagree more, and ordinarily wouldn't waste my time explaining why. Hint: yours is a 'broken-clock' analogy if there ever was one. Neither of the two available candidates can be characterized as 'progressive' or 'libertarian'. You make my point, not your own, not that it matters much. The big issue is that the best people are now, thanks to the

Anyuser, I'm definitely not buying the too-obscure-to-understand argument. Anything worth knowing has nuance, and so does this, but there's nothing at all complicated about the idea that some institution might buy insurance against a bond defaulting. And, years ago, Greenspan thought this was a great idea, because it would spread risk around with free-market efficiency. Pretty neat, in his mind. But at the same time, people like Warren Buffett were calling these credit derivatives "financial weapons of mass destruction." YEARS AGO. So are you telling me that we shouldn't have knocked heads together back then when it would have mattered?? I think it's worth repeating: Educated citizens and opinion-makers who SHOULD have known better --- and whom I hold responsible --- thought this was boring and not worth their time, but they sure did have lots of opinions about Abu Ghraib. A few months ago on Yves' blog (the awesome nakedcapitalism.com), some expert-systems guy talked about how you're supposed to design expert systems so that a big failure in one part of the system doesn't take the whole thing down. He used the human body as a kind of archetype, saying that even a large trauma --- say, a broken arm

Quoting typop: So are you telling me that we shouldn't have knocked heads together back then when it would have mattered??

Nope. Didn't mean to imply that.

Quoting typop: Whereas the financial system, with the cheerleading of Greenspan and others, became ever more systemically connected, almost assuring that a broken arm would cause the heart to stop.

On that topic, this article from this morning's Washington Post might interest you.

Quoting typop: But I guess it's fair to say that people don't find this stuff quite so boring any more.

I'm dismayed by the extent to which so many commentators and politicians change the subject from an effort to understand the problem to partisan political gassing. Perhaps that's a version of boredom.