Ask Veronique Anything: How Is Krugman Wrong?

Andrew Sullivan —  Jul 4 2012 @ 12:00pm

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her recent charts and analysis have been important to the Dish’s coverage of the Euro crisis. Previous videos of Vero here and here. A reader dissents:

Is Veronique de Rugy living on the same planet as the rest of us? Monday she asserted…

(1) that credit default swaps really didn’t have anything to do with the financial crisis, contradicting basically everything that has been published on the subject,

(2) that derivatives trading doesn’t need to be regulated or restricted because that will impede its important role in helping bankers manage risk, even though almost everyone who has written on this subject says that derivatives are very tricky to manage and often unexpectedly risky, and that traders have trouble making good decisions about them due to an opaque and unregulated market, and

(3) that nobody should care when private institutions like J.P. Morgan lose astronomical amounts of money, because there’s no law against losing money – as if none of us could remember when we, the taxpayers, had to save these bankers from ruin only a few years ago?

And yesterday she said that Bush was “the biggest Keynesian out there” because he increased government spending so much during his presidency. That’s flat wrong. A Keynesian increases government spending during a recession, but cuts back on spending during prosperous times. Bush’s spending was exactly the opposite of what Keynes recommended. In her world, is “Keynesian” just another synonym for “big-government socialist”?

Another reader:

Someone should please tell Veronique de Rugy that there is a difference between a grocery store and a bank. The grocery store is gambling with their own money, not FDIC insured deposits. Can we not agree that my deposits at the bank should be kept from the gambling on Wall Street as they were before the gutting of the Glass–Steagall Act? As soon as those regulations fell to the way side, a financial crisis came calling. Unless someone yells stop, bankers will continue to make bets and lose money and, unlike with a grocery store, you and I will be called on to bail them out. Again.

On the point of the bailout money, it’s important to note that JP Morgan did pay it back:

JPMorgan had received $25 billion in support from the bailout fund in October 2008 and paid that money back in June. The sale of the 88.4 million warrants was the bank’s remaining tie to the bailout fund.

Update from a reader:

I bet you get a lot of input about the “JP Morgan paid back its bailout” line because it is only partially true at best I believe. I recommend this entry from Barry Ritholtz’s Blog The Big Picture for more context.

“Ask Anything” archive here.