History likes to mark eras with specific dates and events. Yesterday, Pearl Harbor Day or “the day that will live in infamy” is always known as the beginning of U.S. involvement in World War II, though the impact of the war on the U.S. started long before. While there can be no comparison, today could be known as the day that Econoblogging finally makes the mainstream. Finance and econ blogs have been influencing policy, investment and news for quite some time, but today’s Boston Globe article by Stephen Mihm memorializes the change (from the Boston Globe):
DURING THE PANIC of 1907, the nation’s most powerful banker, J. P. Morgan, brokered a solution to the crisis behind the closed doors of his personal library in New York City. Faced with the total collapse of the financial system, Morgan gathered together the nation’s banking titans into one wing of the library and locked the door, refusing to let them out until they had pledged to help one another through the crisis.
Morgan stopped the panic in its tracks, and his modus operandi – hammering out deals in secrecy – has become the conventional method of managing threats to the nation’s economy. This year, the response to the crisis on Wall Street started that way, too. As venerable Lehman Brothers teetered on collapse, the nation’s top bankers gathered in the offices of the Federal Reserve for a closed-door meeting at which the Treasury secretary urged them to rescue the beleaguered firm on their own. When that effort failed, Secretary Henry Paulson demanded Congress cough up three quarters of a trillion dollars to buy up bad assets, submitting next to nothing to make his case. The message was simple enough: Trust us – we know what we’re doing.
This time, however, something strange happened. A sprawling network of experts in economics and finance began picking apart the Paulson plan – live, in public, on blogs. Despite the vitriol the bloggers dished out – “Why You Should Hate the Treasury Plan” was one of the more temperate postings – this wasn’t a bunch of hacks howling from the sidelines. Their numbers included some of the nation’s top academic economists, such as Paul Krugman, Nouriel Roubini, and Tyler Cowen, along with a host of financial-industry insiders who actually knew a great deal about credit default swaps, collateralized debt obligations, and all the other esoteric instruments at the heart of the crisis.
. . . And that’s how it goes