Italy Can Save Itself and the Euro

So says Martin Feldstein, here.

European Banks as US "Shadow" Banks

Recent paper by Shin of Princeton, highlighted and linked by Krugman, arguing that the European banking system is acting as a gigantic boom-bust amplifier for the US.

Non-US bank branches that conduct business in dollars act as an element, a very big one, of the shadow banking system.

The paper is detailed. Shin draws this conclusion: "The global flow of funds perspective suggests that the European crisis of 2011 and the associated deleveraging of the European global banks will have far reaching implications not only for the eurozone, but also for credit supply conditions in the United States and capital flows to the emerging economies." Why? In the end the most important thing is that "dollar-denominated assets of banks outside the U.S. are comparable in size to the total assets of the US commercial bank sector."

On the Limits of Ratiocination

"If you have any fact which you think is really sinister...forget it, man, because you can never on your own think up all the non-sinister, perfectly valid explanations for that fact."

Errol Morris's short video at the NYT site on The Umbrella Man. HT Kedrosky.

Household Debt is What is Costing Jobs

Great article by Mian and Sufi explaining that debt levels are what is depressing demand, and costing 65% of the jobs lost in the current mini-Depression. Key point, which they reach by examining county-by-county variations in housing price declines:

"Our research suggests that 65 percent of the job losses from 2007 to 2009 came from the drop in household spending induced by the collapse in home prices and its effect on a highly levered household sector."

A related presentation of some of their details is here. Not a surprising conclusion, but the way they prove it is clever.

Europe's Limited Options

Good, brief interview with Willem Buiter. (HT Kedrosky.) Buiter is a former member of the Bank of England's Monetary Policy Committee, and is now chief economist at Citigroup.

Real GDP Per Capita for the Past 50 Years

A picture being worth 1,000 words. Created using FRED, a great tool. (Uses annual figures; details here.)

Briane Greene on String Theory and the Multiverse

Interviewed by Terry Gross on Fresh Air. Great interview...and math-free.

Long-Term Unemployment

A troubling graph of data from 1967 to present, from Pew, HT Paul Kedrosky.

Roger Lowenstein on Corzine and MF Global

It's fascinating to me how good Roger Lowenstein is at finding the right cord in financial stories, and tugging on it.

I like his take on the bankruptcy this week of MF Global. Jon Corzine should have known better. He is an ex-Goldman CEO, ex-New Jersey governor, ex-U.S. senator, and had been in charge at MF Global for more than a year.

In Lowenstein's words, Corzine apparently failed to learn from prior disasters at LTCM and Lehman. "Corzine had a ringside seat, and the message didn’t stick," Lowenstein writes, so how hopeful can we be for learning by humanity generally? Granted, the facts are still coming out.

Lowenstein's books on LTCM and Buffett are very worthwhile, too. His late father, Lou, was a securities law professor at Columbia. Back in the 1990s when I co-wrote, with the late Larry Soderquist, an article on laws and regulations pertaining to initial public offerings (abstract here), I discovered that Roger's father was one of the few people who had written something in that area that was actually useful and deep. So, like Hank Williams Jr. following Hank Williams Sr., Roger comes from a "family tradition" of thinking deeply, well, and morally about business and life. And like his pa, Roger can really write.

Law as Bungee Cord

From Brad DeLong, a post about the Bank of England. In the 19th Century, it stretched its legal authority (really, went beyond its authority) with regard to printing money, when it thought it needed to. Whether it should have done that or not is not as clear to me as it is to him, but the fact that it did is news to me, and interesting.