02.12.10 "Its major role is to transform the forms of wealth that exist in the economy into forms of wealth that savers want to hold."

Our title today is from an off hand comment that Brad DeLong made (in subsection 5). It is worth quoting at length, as it seems to be a good summary of "the money markets" which I suspect we will be getting into shortly:

The financial-monetary sector does a lot more than facilitate exchange--a problem that was solved by the invention of coinage under Gyges King of Lydia 2800 years ago. The financial-monetary structure does facilitate exchange, but that is only one of its roles. Its major role is to transform the forms of wealth that exist in the economy into forms of wealth that savers want to hold. The forms of wealth that exist in the economy are long-term illiquid risky projects and organizations that require a good deal of supervision and oversight. The forms of wealth that savers want to hold are short-term liquid safe assets that can be left to manage themselves. To move from one to the other financiers must (a) find people tolerant of bearing risk, (b) people willing to monitor and oversee, (c) people to make markets to create liquidity, while (d) betting that the law of large numbers can keep the whole thing from crashing down as they try to maximize their profits by paying the minimum to outside risk bearers, monitors, and market-makers.

Inventory cycle and GDP. Calculated Risk. A wonderful illustration of overinvestment in inventories.

Economists' Hubris - The Case of Risk Management. SSRN. Yet another in the ongoing series of "models are guidelines."

Microlender Accion USA Avoids 'Antipoverty' Pitch. American Banker (H/T Felix, i think).

Paying Zero for Public Services. WorldBank

The Nordics in the global crisis . VoxEu

An Interview with Paul Samuelson. New Yorker.

Time to go read the Macro Chapter 4.