Risk management
Thursday, 13 December 2007
Okay, gotta return to that big scale, long time span perspective in pondering this piece by Alan Greenspan in the WSJ on our current mortgage/banking crisis. I certainly don’t know enough about modern history to theorize about this subject, so a critical look at Greenspan’s ideas seems, well, wise.
Key idea: post-WWII expansion-of-exports model of national economic growth in third-world countries, with the developed world being the buyers. Or, from the developed world perspective: exporting jobs (Greenspan doesn’t say this here) and depressing labor compensation rates (Greenspan does say this; I’d use the term “wages”).
Greenspan’s next point: what people in developing countries did with their increased income—they decreased investment, I suspect (G doesn’t say this) because they were buying more stuff = goods (= clutter in Anne-speak) with their expanded income.
This, he says, brought down global long-term interest rates, and the reason we should worry about this is, um, I think, when the price of risk surges…well, you can tell I’m lost….
Still, I’m glad I tried to sort it out….