>It--large unhedged derivative books that transform the U.S. foreign
>debt from something denominated in $$$$ to something denominated in
>pounds or euros or yen--is the obvious point failure source for the
>U.S. macroeconomy. Peter Fisher, John Taylor, and Glenn Hubbard are
>highly competent, none of them is attached to the belief that
>competitive financial markets work well (indeed, Glenn made his
>reputation on studies of how the capital market did not work well
>and hence on firms' preference for financing investment from
>internal cash-flow rather than external market-raised finance), and
>are as good as (or better than)
And Larry Summers wrote some papers on noise trading, market overreaction, and the virtue of a transaction tax. Then he joined the government and forgot all that.
> me at judging risks and regulatory mechanisms.
>
>But their political mastes are not competent, and may not be persuadable...
>
>
>
>Brad DeLong, moving another four boxes of girl scout cookies and a
>twelve-pack of diet coke under his desk...
My friend Randall Dodd from the Derivatives Study Center points out that the level of notional principal exposure isn't a meaningful number in itself - it's that relative to bank capital that really counts. And that ratio suggests that you might want to add some more nutritious fare to your under-desk larder.
Doug