Even more optimistic

today. Putting equity into the banks is the best thing to do. But some more financial institutions are going to have to fail, and the government is going to have to decide who the winners and losers are. I hope that they decide in a way that everyone can understand clearly. If the survival rule ends up being ‘too big to fail,=’ only, then we have sown the seeds of the next crisis.

We can praise Paul Krugman for pushing for a reasonable solution, and also for pushing against the overpaying for mortgage assets non-solution.

I am a bit surprised that Paul Krugman got the Nobel prize this year—although like many other observers, I expected him to win eventually, as he should.

The backlash against derivatives trading is going to be interesting. Will it highlight Merton Miller’s point that many financial innovations end up being about ways to get around regulatory constraints and tax rules? How will that play out?

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