Can Future Systemic Financial Risks Be Quantified? Ergodic VS Nonergodic Stochastic Processes

Politicians and talking heads on television are continuously warning the public that the current economic crisis that began in 2007 as a small sub prime mortgage default problem in the United States  has created  the greatest economic catastrophe since the Great Depression.  What is rarely noted , however, is that what is significant about this current economic crisis is that it origin, like the origin of the Great Depression,  lies in the operations of free (deregulated) financial markets. As I pointed out in two recent articles (Davidson, 2008a, Davidson 2008b), it is the deregulation of the financial system that began in the 1970s in the United States that is the basic cause of our current financial market distress.

Reforming the World’s International Money

The last two lines of the original manuscript of my book JOHN MAYNARD KEYNES (Palgrave, 2007)  was written in July 2006. In those lines I noted that “when, not if, the next Great Depression hits the global economy, then perhaps economists will rediscover Keynes’s …analytical system that contributed the golden age of the post World War II. For Keynes, however, it will be a pyrrhic victory”.

Dear World Leaders

Embargo until:

November 7, 2008 Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy

Dear World Leaders:

The Winter of 2007-2008 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide. For more than three decades mainstream neoliberal economists have preached, and regulators have accepted, the myth of the efficiency of unregulated markets, ignoring the critical lesson provided by John Maynard Keynes’s analysis of interconnection of financial markets and the international payments system.

Evaluating Toxic Assets – And Where Do We Go Next

Remember that the original Paulson bailout plan and the major function of the revised TARP rescue legislation is an attempt to prevent massive insolvencies in financial institutions that have, on their balance sheets, “securitized” assets (e.g., Mortgage Backed securities [MBS, CDOs, credit default swaps ,etc] that had become virtually illiquid as the market for these […]