Salmon Response To Krugman Op-ed On Securitization

March 27, 2009

Felix Salmon makes a good argument here. He says the problem is not securitization itself but the practice of selling CDOs, which didn’t start until the late 1990s. He concedes, though, that the gargantuan size of the financial services sector of the economy over the past decade or so has been ridiculous (41% of total corporate profits), and he likens it to a “Ponzi scheme.” The whole thing’s worth reading, and it’s very short.

Also worth reading is Simon Johnson’s (much longer) essay in The Atlantic. Here’s the summary:

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

Johnson’s a prof at MIT’s Sloan School. His office is about 20 seconds away from mine (which means absolutely nothing at all, but it sounds cool, I guess).

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