Brad DeLong places himself squarely in the camp of the Cycs rather than the Strucs when it comes to Jim Ledbetter’s distinction between economic unemployment theorists. The Cycs think that unemployment is cyclical and will fall as demand grows; the Strucs think it’s structural, and the result of a mismatch between the jobs available and the unemployed workers looking for employment.
Earlier this month, talking about a housing market unsupported by Uncle Sam’s billions, I said that “the entire housing-finance business in the U.S. would come to a screeching halt. No one could buy, no one could sell, and home values would be entirely hypothetical.” What I didn’t realize was that we were plunging towards that state of affairs even with the vigorous and active involvement of Fannie Mae and Freddie Mac.
Donna Borak has found an upcoming paper from Fed economists Wayne Passmore and Diana Hancock proposing a government backstop for asset-backed securities. This sounds very much like Gary Gorton’s paper back in May, which was a very bad idea back then, and is just as bad of an idea now.
Jenny Strasburg misses the point of the Black Swan Protection Protocol:
Clients don’t hand over their entire account for the firm directly to manage. Instead, clients designate a certain pool of assets, a notional value, that they seek to hedge, or protect against extreme losses.