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  • Satayajit Das: A Call for Cooperation Among Key Finance Ministers

    Satyajit Das --global banking expert and author of several books on banking and trading, including Extreme Money: The Masters of the Universe and the Cult of Risk --says that the global economy is in for a lot of pain this year if policymakers don't start working together. In an interview with the Institute for New Economic Thinking 's Robert Johnson , Das argues that we need to return to the approach that finance ministers took in 2008-2009, when the consequence were clear and the need for cooperation was better understood. Here is an excerpt from that interview: Watch the full interview here .
  • 'The Warning' from Frontline

    As head of the Commodities Futures Trading Commission , Brooksley Born was concerned about secretive trading practices of derivatives. She wanted more oversight of the derivatives market. But Alan Greenspan, Larry Summers, and others wouldn't listen--and blocked her attempts to put more regulations into the financial system. When 2008 hit, her worst fears started coming true, as she tells Frontline : It was like my worst nightmare coming true. I had had enormous concerns about the over-the-counter derivatives [OTC] market, including credit default swaps, for a number of years. The market was totally opaque; we now call it the dark market. So nobody really knew what was going on in the market. And then it became obvious as Lehman Brothers failed, as AIG [American International Group] suddenly appeared to be on the brink of tremendous defaults and turned out had been a major credit default swap dealer and needed hundreds of billions of dollars to keep it alive, the contagion in the marketplace from those failures brought many, many of our biggest financial services companies to the brink of collapse. And it was very frightening. Born's story is at the center of a new Frontline documentary called The Warning . Here's a preview: You can watch the full program here .
  • Robert Merton on Derivatives and the Global Economic Crisis

    Robert Merton was rewarded a Nobel Prize in Economics (along with Myron Scholes ) for his work on " Analytical optimal control theory as applied to stochastic and non-stochastic economics ." Or, to put it another way, he and Scholes were recognized for coming up with new ways of determining the value of derivatives. In this lecture at MIT he explains how put options, a type of derivative, are at the center of understanding the root cause of the global economic crisis: Here's a good one page summation of Scholes and Merton's work on derivatives from Nova . (Hat tip to Greg Mankiw and Arnold Kling)