Arnold Kling of EconLog talks with EconTalk host Russ Roberts about the role of credit default swaps and counterparty risks in the current financial mess. The conversation opens with the logistics of credit default swaps and counterparty risks and moves on to their role in the financial collapse. The conversation closes with a discussion of the political economy of pending financial regulation.
It’s an hour long podcast recommended by a reader who writes:
Taleb has called the current credit crisis a “white swan” because it was forseeable (as he noted). I think the true Black Swan is what the government is doing in response to the crisis. In short, they have rewrote the rolls. As Arnold Kling in this podcast notes, who would want to invest in U.S. equities when the Paulson or Bernanke can take it away? Or, the audacity of Bernanke and Pualson to complain that banks are not using the money that the U.S. government has loaned them to make new loans. But why would the banks make loans when the Paulson keeps chanign the rules? And with Obama coming in, and the democrats in control, it will be scary times I fear. The Black Swan is still in front of us not behind.
Those who watch the podcast may wish to turn this into an open thread. What will this new intervention in financial markets ultimately mean? If a new Black Swan comes along, what might it look like?