Niall Ferguson:

It began as a sub-prime surprise, then became a credit crunch and is now a global financial crisis. At last month's World Economic Forum at Davos there was much finger-pointing - Russia and China blamed the US, everyone blamed the bankers, the bankers blamed everyone - but little in the way of forward-looking ideas. From where I was sitting, most attendees were still stuck in the Great Repression: deeply anxious, but fundamentally in denial about the nature and magnitude of the problem.

The great repression

Joel Lovell:

It's weird and disconcerting that after all that has happened there are still so many experts out there willing to dispense wisdom with utter assuredness, day after day, despite having been so spectacularly wrong in the past. Their confidence saps my own. For those of us in the advice business -- and this extends beyond just investment advice to everything else in our lives that now exists in the firm grip of uncertainty -- the challenge is: How do I tell people what to do when prospects are so grim and outcomes so completely unpredictable? How do I acknowledge the limits of what I know while still maintaining credibility?

These are questions the Jim Cramers of the world, and the ubiquitous and somewhat frighteningly undaunted Suze Orman, don't seem very interested in dealing with.

What Do They Know?

Joel Spolsky:

A new business is like a shortwave radio. You have to fiddle patiently with all the dials until you get the reception you want.

How Hard Could It Be?

Harvard economic historian Niall Ferguson predicts prolonged financial hardship, even civil war, before the ‘Great Recession' ends

See also:

"I drink your milkshake! I drink it up!"

There will be blood

Felix Salmon, in Wired:

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart.

As Li himself said of his own model: "The most dangerous part is when people believe everything coming out of it."

Recently:

Smithers: That's quite a nice model, sir.

Burns: Model?

From last year:

The problem is not the ignorance. The problem is the bliss.

From 2004, Paul Graham:

This idea is so pervasive that even the kids believe it.

From 1998, Stewart Brand:

In some cultures you're supposed to be responsible out to the seventh generation -- that's about 200 years. But it goes right against self-interest.

Recipe for Disaster: The Formula That Killed Wall Street

Recently, on Charlie Rose:

A discussion about the economy with Nina Easton, Fred Mishkin, Nouriel Roubini and Mark Zandi

From the archive:

The US has been living in a situation of excesses for too long. And when you have too many financial engineers and not as many computer engineers, you have a problem.

I think this country needs more people who are going to be entrepreneurs, more people in manufacturing, more people going into sectors that are going to lead to long-run economic growth. When the best minds of the country are all going to Wall Street, there is a distortion in the allocation of human capital to some activities that become excessive and eventually inefficient.

A discussion about the economy

In case you missed it last week, when Martin Wolf, the world's preeminent financial journalist told you that "a sizable proportion of financial institutions are insolvent", here's Nouriel Roubini with an update:

The US banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.

We have used all our bullets, and the boogeyman is still coming. Let's pull out the bazooka and be done with it.

See also, reporting by Steve Lohr:

Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking.

We're all Swedes Now

Paul Kedrosky:

Here are two useful Depression-era factoids to keep in mind. The time it took various economic measures to return to 1929 levels:

* Real GDP: 8 years (1937)
* Real S&P: 27 years (1956)

Some Depression Recovery Factoids

It is nonsense to think that we can assess risks and thus protect against a crash.

A panel discussion between Daniel Kahneman and Nassim Taleb, moderated by John Brockman.

Reflections on a Crisis

Carmen Reinhart and Ken Rogoff:

Can the US avoid continuing down the deep rut of past financial crises and recessions? This is not the time for the US to avoid painful but necessary restructuring by telling ourselves we are different from everyone else.

Expect a Prolonged Slump