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Paul Krugman Blog

11 Januar, 2010 (16:00) | Economics, Politics | By: pooq

What I secretly feared more than presenting political blogs was presenting economical blogs. Now I meet an even worse fate: a blog on economic and politics. And if that were not enough I got right to one of the masters of that field: Paul Krugman himself. Wee.

So his first question to me is „Too big to fail fail?„. Eh. Think. Don’t say something stupid now. Something like „I want to move it move it“ or so. Obviously this can’t be a typo – this is Paul Krugman speaking. So I say „no“. Surely I am not „too big“ and I consider I could „fail to fail“. Let’s see if that answer is correct.

It seems that Krugman wasn’t asking me that question. I don’t think he asked that question to anyone. He simply refers to some statement David Warsh has made indicating that in Krugmans opinion „American banks must be large in order to compete in global markets.“

But Krugman did not say that and does not think that it is true at all. He thinks that the economic risk of a bank does not depend on it’s size but on the leverage risk they take. I think he means the economic risk of the state as we all know there hardly is any leverage risk for banks.

Quite obviously I did not understand Krugman at all. Of course being large is a helpful factor in competing in the global markets so his opinion is such a fail that I surely got him wrong. His other conclusion is that if banks (are forced to) take lower risk then there is lower risk. Does not sound like great science.

I feel quite lucky that I am not „too big“. Though I obviously failed much more than David Warsh in understanding Krugman I do not have to fear that this got mentioned in any blog article.