Economist Debate on Regulation: Scholes vs Stiglitz
Very cool debate at the Economist:
JOSEPH E. STIGLITZ: The current crisis is caused, in part, by inadequate regulation. Unless we have an adequate regulatory system—regulations and a regulatory structure that ensures their implementation—we are bound to have another crisis.
MYRON S. SCHOLES: There is now a rising chorus among regulators, politicians and academics claiming that the freedom to innovate in the financial domain should be curtailed.
Me: Over the past 30 years, the United States has moved from an environment of excessive regulation to excessive deregulation. This philosophical change was taken to irrational extremes, and it lay at the heart of the current financial crisis.
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Scholes should be ashamed to publish after what his work, and those who used it, have done to the global economy.
Market behavior does not follow a Gaussian distribution. In fact, we don't really know what the distribution is, but we know it has very fat tails - extremely unusual events are not that unusual - and this is not captured in his models.
Posted by: Wisdom Seeker | Oct 17, 2008 2:08:54 PM
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