IMF lessons from the financial crisis

[admin]

With all respect to Oliver Blanchard, but I think there are more lessons to be drawn here,especially the need for proper regulation of financial markets:

1. Financial markets are extremely prone to information asymmetries, that is, one party in a transaction knowing significantly more than the other party, and opportunistically exploiting this advantage
2. Once you realize the staggering amounts of information behind simple prices like those for stocks, bonds, or other financial products, you'll begin to understand that problem.
3. Disclosure and transparency, and the importance of reputation are ways to deal with this problem to some extent, forced by regulation
4. If you disagree, I have a simple question. Do you prefer to trade stocks on the Pink Sheets, or on the NYSE?
5. Simple rules could have prevented exceses, like rules on maximum leverage at banks and investment banks, rules for mortgages (downpayments, tying the size to income, etc.)
6. Securization is a mixed blessing, the market isn't always better. It is the job of banks to assess and monitor credit risk, but by repackaging low quality mortgages into complex marketable securities, they lost the incenitve to execute this primary task. Instead, they opportunistically exploited information asymmetries (that is, they knew most of these mortgages were junk, but by repackaging them into complex products, they managed to convince buyers that they weren't).