Tuesday, March 25, 2008

Trust, but Punish: Megan

She wrote it, not me:
"I think this determines how we should handle the financial meltdown. In many sorts of repeat games, 'trust, but punish' is the value maximizing strategy for all participants. That's my approach to financial regulation. We should aim to provide maximum transparency, and keep the moral hazard problem down by establishing capital requirements that reduce the government's downside risk. But we should be very suspicious of prospective regulations that aim to prevent failure; the best way to do that is usually to close off potential avenues of success."

If you don't read Megan's blog and you are interested in economics, you better. She has a unique perspective for someone who has an academic degree in economics. She understands the complicated stuff, but can talk down to the rest of us without, well, telling us we are stupid. We are stupid, but Megan does her best to convey economics to the layman via catchy turns of phrases. Now, if she wasn't so darn tall and lived in New York, I'd........


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