If you want to get caught up on the financial and economic crisis in a hurry (and get a quick refresher on first-year macroeconomics), Charles Jones has a drafted a new chapter on the crisis for his macroeconomics textbook. (If you’ve already read all of our Beginners posts, though, hopefully you won’t need to get caught up.) It’s 43 pages long (not very many words per page, though) and includes a relatively standard account of how the crisis came about (with a focus on the U.S. housing bubble), the impact on the real economy, and the thinking behind monetary policy, the fiscal stimulus, and the main proposals to fix the banking system. (Perhaps wisely, he doesn’t say which proposal – buying toxic assets, recapitalization, or reorganization – he recommends.) There is a discussion of what the crisis looks like in IS-LM terms – the main change from the standard version being the jump in the risk premium, which undermines the Fed’s ability to reduce effective interest rates. He also discusses the “zero bound” on nominal interest rates, in case you were wondering what that meant.

I think there should be a lot more on the crisis outside the U.S., for two reasons: first, it’s hitting harder in most other countries; and second, with so many countries being affected in so many different ways (Eastern Europe bubbles collapsing, China and Japan losing demand for exports, Russia hit by falling commodity prices, Iceland crashing under a hypertrophied banking sector), there would be lots to write about.

Jones even closes with a note of optimism:

Whatever happens in the coming years, it is worth remembering a key fact about the Great Depression, in evidence on the cover of the macroeconomics textbook . . . Even something as earth-shaking as the Great Depression essentially left the long-run GDP of the United States largely unaffected.

Update: I meant, but forgot, to add that Jones does not attempt to address the question of whether macroeconomics as a field needs to be revised in the light of the crisis. Mark Thoma has several posts on this question: a few are here, here, and here.

Now, I’m happy to accept that as part of my current baseline view (and we will revise our forecast accordingly).  But there are serious downside risks to this forecast, i.e., we could move again into crisis mode.  The three places I look at on a daily basis for crisis-promoting potential are:

1. The US financial sector.  There is still pressure around the insurance industry and some parts of the banking system will surely need more capital before too long.  But the rather generous terms of the Citigroup bailout have reassured shareholders and the Fed is providing massive lifelines, we think, to the needy of any kind.  And while the auto industry could still have an accident, most likely there is enough cash just around the corner to get them into February.  Plans for a big fiscal stimulus have also probably reassured people to some (vague) extent, at least for the time being.

2. Emerging markets.  Here the news is pretty bad and not as widely known as all that is wrong with US financials.  In particular, I’m struck that many of the most perceptive analysts of China have clearly realized that growth has hit a serious wall, yet they feel unable to mark down their forecasts dramatically.  I don’t know if this is more about not wanting to upset clients or the Chinese authorities (or the Chinese authorities who are your clients), but there is definitely cognitive dissonance afoot.  Still, with the oil market taking a long hard look at $40 oil and thinking about the lack of likely technical resistance at that level, I rather suspect that the broader commodity sector has seen through the Chinese Veil.  Still, crisis is about discontinuity and default, and there is real potential for some oil producing and commodity exporting countries to run into serious payments problems.  No one has yet thought enough about some of these far-flung places (no names please) and their interconnections with the rest of the global system.

3. The eurozone.  This is where the crisis potential really lies (no change from last week).  The credit default swap spreads say there is danger ahead for Greece, Ireland, Italy, and – if that is true – for others also.  This is a classic fiscal problem pure and simple, although it is the macro hedge funds who are sounding the horn - saying it is time to go hunting (remember: as liquidity returns to the core financial markets, it becomes easier to take big negative bets).  These eurozone sovereigns have a great deal of debt and this debt is not in a currency they control – ironically, through joining a currency union they created a potential emerging market situation, in which a national strategy of moderate inflation and depreciation is no longer an option and debt burdens must be dealt with through painful fiscal adjustment.  The real crisis, however, arises from the fact that  almost no one in Europe – and definitely no officials – either see this coming or are willing to take any action to head it off.  Note that while the ECB has begun to cut interest rates, as we recommended in October, no one in Europe feels it is their job to take on the broader systemic issues that we emphasized need to be dealt with at the same time - in complete contrast to the situation in the United States (at least as the Obama team becomes seriously involved).

As we have seen time and again since mid-September, what really leads to serious crisis is denial.  There is not much denial left in the US (although watch this space for any update to that) and there is no much I could tell you about, for example, Russia that would really shock at this point.  But suggesting the idea that a serious sovereign credit problem looms in Europe is enough to make me quite unpopular with some of my current and former colleagues.

Unfortunately, this is the last webcast for now; the final class on December 9 will not be recorded. For previous classes and class-related materials, use the Classroom category.

Thanks to all of the participants on the Internet.

The Global Crisis, class #4

Relevant links, including background material and tracking of all relevant developments available through http://BaselineScenario.com.

Update: Webcast for today’s class (RealMedia).

Summary of class content and structure:

1. Update on the global crisis

1. The latest news from around the world
2. What may be next?  Looking to Europe…

2. The case for and against bailing out Citigroup

1. Comparison with General Motors
2. Assessment of the bailout terms
3. Who was to blame?  And for what exactly?

3. The situation in Europe

1. Signs of pressure: financial sector and real economy
2. Policy responses: European Central Bank interest rate cuts, a more unified fiscal stimulus?
3. Specific country issues: Italy, UK, Spain and others

4. Prospects for global financial system reform.

a. Recap on likely strategy of President-Elect Obama’s team with regard to fiscal and monetary policy.  What is their likely global strategy, with or without the IMF?

b. How does this fit with what the rest of the G7 or emerging markets or any other influential players want?

c. Can we see a full overhaul of the global system coming soon?  If not, why not?

Final class is on Tuesday, December 9.  Discussion in the December 9 class will be off-the-record; it will not be broadcast or recorded.

This is the last class on the crisis that we will broadcast & record, at least for now.  (There will also be a class on Tuesday, December 9, which will review the crisis to date; I’ll post summary materials but that session will not be recorded.)

On December 2^nd, I plan for us to cover the following topics:

1. The Citigroup Bailout, including whether this is or is not good value for the taxpayer (search this website for Citigroup to see readings).  Robert Rubin’s interview with the Wall Street Journal on Saturday is also essential reading (the WSJ article requires a subscription; the blog naked capitalism provides a free summary and some reactions worth discussing.
2. The situation in Europe, which continues to worsen.  We’ll review the latest developments in the real economy and indications of various kinds of pressures (think: Italy, but the UK, Spain and other countries may well come up).
3. Prospects for global financial system reform.  We can see fairly clearly the strategy of President-Elect Obama’s team with regard to fiscal policy, and we can infer some implications for monetary policy.  But what is their likely global strategy, with or without the IMF?  How does this fit with what the rest of the G7 or emerging markets or any other influential players want?  Can we see a full overhaul of the global system coming soon?  If not, why not?  (Search for Global Reform on this website for readings.)

Feel free to post questions here or email to us, through this website.  We’ll cover as many as possible in the classroom discussion.

Details on the webcast and some potentially useful background follow:

The RealMedia stream for Tuesday afternoon will be:

http://web.mit.edu/webcast/sloan/2008/simon_johnson/sloan-financial_crises-simon_johnson-E51345-02dec2008-1630-350k.ram

RealPlayer version 8 provides all required functionality for viewing this webcast. Here’s a link that provides some verification resources for viewers of RealMedia content: http://web.mit.edu/smcs/help/realhelp.htm

A recording will be available to download later in the week, probably on Thursday.

And, in case it is helpful, here is a summary of our MIT Global Crisis class materials on the web so far:

#1, October 29: The slides I used are available on the web.  This session was not recorded.

http://baselinescenario.com/2008/10/29/mit-class-1-on-global-crisis/

#2, November 4: Video available, with summary of discussion:

http://baselinescenario.com/2008/11/06/downloadable-mit-class-on-the-global-crisis/

#3, November 18: Class outline is in the first link; video is in the second link

http://baselinescenario.com/2008/11/18/session-outline-mit-global-crisis-class-at-4pm-today/ http://baselinescenario.com/2008/11/21/video-of-tuesdays-mit-class/

#4, December 2: see materials above and postings to follow

Note: original course plan was posted at the end of October, but more than a few things changed in the world since then:

http://baselinescenario.com/2008/10/28/mit-global-crisis-class-outline/

If you read this far, hopefully you know that the readings for the class are the postings on this website in general: http://BaselineScenario.com.  Structuring and opening up a MIT course in this way is an experiment.  Based on your feedback (e.g., posted here or emailed to us or otherwise sent to MIT Sloan), we’ll either do something like this again or not.

The difference really lies in two factors: extreme views about inflation, and the nature of decision-making within the ECB.  Belief that a resurgence of inflation is always imminent is, of course, Germanic but not limited to Germany.  Within the 15 central banks represented on the ECB’s Governing Council, there will always be at least one or two who see unions as looking for an excuse to push up wages.  We can debate whether or not this view is correct under today’s circumstances, but that is irrelevant – these inflation hawks still appear to strongly hold such beliefs.

Of course, there are inflation hawks among all groups that make monetary policy.  But the consensus-seeking process at the ECB is such that even just a few such people can serve as an effective brake on rapid action.  The existence of such views has plainly not prevented the ECB from taking dramatic action on some fronts (e.g., in terms of liquidity provision the ECB arguably moved farther and faster than the Fed last year), but for core monetary policy issues – i.e., when the price stability “mission” is at stake - a couple of outliers can really slow things down (particularly if one or more are members of the Executive Board.)

if the ECB puts through a fairly standard interest rate cut, then it is Business As Usual in the eurozone.  Combined with the rather anemic (or largely smoke and mirrrors) fiscal stimulus in the EU, on top of Europe’s well-known labor market inflexibility (i.e., it is hard to reduce your wage costs, even if business turns down sharply), then the eurozone is in for a rough ride. 

If the ECB surprises the market with a dramatic interest rate cut, at least we will know they are firmly in catch-up mode.  But even then, I’m afraid it is probably too late to have much effect on the recession in 2009.  Under the best of circumstances, interest rate moves affect the real economy with a lag of at least a year.  And the current disruption in the credit market is far from helping monetary policy be effective.

While we will no doubt look back on this crisis as having its epicenter in the U.S., it’s the lack of coherent policy response (monetary, fiscal, regulatory) in Europe over the past year that has really helped turn this into a sustained global crisis.

1. The Citi deal shifts pressure from US financial institutions, at least for a while.  But to the markets it raises the question: who or what is next?  And the indications again point to the eurozone.  Credit default swap spreads indicate increasing differentiation between Germany on the one hand and, say, Greece (or Ireland or Italy or Spain) on the other hand.  I don’t want to single out Greece, but the recent IMF Article IV Report has some very interesting debt path simulations (the report’s Figure 3) - if you update these in the light of current global circumstances, you can see why Greece may well need a bailout before too long (remember: their government debt is in euros and cannot be inflated away, unlike in the US or UK, for example.)  The market view is that some European governments could not really afford the generous bank bailouts they provided in October.

2. For all the increased discussion among politicians and academics about reforming the global system, to preempt the next crisis, why would the most powerful people on Wall Street want this?  The Citi deal shows that the clout of the US financial industry has, if anything, actually increased over the past eighteen months.  “Wall Street owns the upside and the taxpayer owns the downside” is an old saying which seems more appropriate now – and on a bigger scale – than ever.  There is no harm in proposing changes to deficient national regulatory systems and international, rather creaky, Bretton Woods structures.  But strong forces just found out that these structures are completely compatible with rather juicy bailouts (and there may be more to come), so don’t expect rapid or meaningful real reform. 

3. If we are now at the next stage of bailouts and of figuring out who can afford to do the bailing, then existing resources – in and around the IMF – for helping emerging markets are really not enough.  The G7′s strategy proposal to emerging markets is clearly: ”finance, don’t adjust (much),” i.e., keep on growing one way or another.  This might or might not be a good idea, but it will only work if backed by enough official loan support when needed - this is what many countries will need to sustain a current account deficit or offset capital outflows and keep growth on track.  IMF available resources, even with the recent loan from Japan, are only around $200bn.  You really cannot save many banks/countries with that amount of money these days – the IMF lent over $40bn this month alone.

Keep your eyes open for future live webcasts where you can send in comments and questions.

Outline of session; November 18, 2008

The Global Crisis, class #3

Relevant links, including background material and tracking of all relevant developments available through http://BaselineScenario.com.  Details of session after the jump -

Our guest for the first half of class is Jeff Shames, who teaches finance at MIT Sloan.

Update on the crisis worldwide

1. Latest market views on U.S. housing
2. Where are major global banks heading and why (e.g., Citi)?
3. Current pressures on insurance, Russia, Greece, etc; what are the other vulnerabilities?

Global finance dimensions: conversation (by phone) with Peter Boone, of Effective Intervention and Centre for Economic Performance, London School of Economics

The case for and against bailing out General Motors

1. Could GM operate in Chapter 11?
2. What would be the broader consequences of reorganization through bankruptcy in the auto industry?
3. What is likely to happen?  Is it more about politics or economics?

Assessment of the G20 meeting in Washington, November 14-15^th

1. Any real progress on coordinated fiscal stimulus or other short-term macro policies?
2. More funding for the IMF from Japan.  Anything else in the works?
3. Who were the big winners?

• i. Mr. Sarkozy? Is the coming wave of regulations procyclical?
• ii. Mr. Brown? Who will provide the global early warning system?
• iii. Emerging Markets? Which ones and why exactly?
• iv. Mr. Obama? In what sense?

What would you recommend as a broad economic strategy for Mr. Obama’s administration, to deal with the crisis and manage a strong recovery?  How long will it take?

The latest round of debate on fiscal stimulus in the United States (see also my testimony to the Senate Budget Committee, tomorrow).  What would you say?

No class on Tuesday, November 25. Next class is Tuesday, December 2^nd, when it will start at 4:30pm and run until 7pm.

Update: Flash recording of class.

From 4pm to 7pm Boston time, we’ll talk about (1) GM, to bailout or not, and how this fits with the likely direction of the US economy; (2) the G20 meeting this weekend, including what happened and why; (3) the overall flow of the crisis around the world and back to the United States.  I’ll be testifying on Capitol Hill on Wednesday, and will try to preview some of the more relevant points in class.

You can find background reading for any of these topics on http://BaselineScenario.com: just look at relevant tags (e.g., G20), search for the keywords, or look under the category “Classroom.”

For part of the class our guest will be Jeff Shames, a very experienced investor.

As before, you can post your questions here, and we’ll try to deal with them during class; we keep an eye on the website during the session.

Our technical team sends the following information…

The live webcast will be in RealMedia format. Here’s the link to the webcast: http://web.mit.edu/webcast/sloan/2008/simon_johnson/sloan-financial_crises-simon_johnson-E51345-18nov2008-1600-350k.ram

RealPlayer version 8 provides all required functionality for viewing this webcast. Here’s a link that provides some verification resources for viewers of RealMedia content: http://web.mit.edu/smcs/help/realhelp.htm

A recording will be available to download later in the week, probably on Thursday.

None of this is really new and it could all have been arranged by finance ministers (probably over the telephone), but I agree there is some useful symbolism in having heads of industrialized and emerging market governments convene for the first time (ever?) on these kind of issues.

I will admit to disappointment that no more explicit commitments were made to fiscal stimulus.  I thought the British and the French were heading in this direction, and that they could create some momentum in the right direction.  If Europeans (or anyone else) would like to compete for a “special relationship” with the US after January 20th, they might consider coming to the next summit with substantial fiscal package in hand (as will President Obama). 

If the latest rounds of global economic diplomacy were the Olympics, then China gets gold in the fiscal stimulus category, Germany gets silver, and the UK (so far) is the distant bronze – but the UK does get one more throw next week.  Not the ordering of world economic leadership that one would ordinarily expect, but perhaps that’s a good thing.

In the category of “largest cash contribution designed to save the world from serious disruption”, Japan easily finishes first – their $100bn pledge to the IMF this week was timely, targeted and hopefully not temporary.  Sadly, there were no other entrants in this category.  Perhaps the chemistry and cooking at the White House dinner on Friday will prompt further contributions in the near future?

But there is, unfortunately, another way to read the communique - as a government or international official, for whom this text really is a set of instructions to be implemented.  The whole first part of the document is generic and definitely not new, so – as an official – one’s eye skips through that quickly.  The real issue is the deliverables in the plan of action, with a pressing deadline at the end of March (this is pretty much like saying “do it tomorrow” to an official).  This is where we - an official reader is thinking – must concentrate our immediate attention and efforts.  And most of these specific actions are about tightening regulation on and around credit, or beginning processes that definitely point towards many dimensions for this kind of tightening – accounting standards, hedge funds, risk disclosures, financial sector assessments, credit rating agencies, risk management and stress testing models, international standard setters, sanctions for misconduct, reporting to supervisors in different countries, and more.

There is, of course, nothing wrong with making regulation more effective.  This is surely needed – in both the US and Europe, and probably elsewhere – to help lower the odds of another global financial crisis developing in the future.

But we are still not out of this crisis.  And tightening regulations quickly in the midst of a worldwide credit crunch is one good way to make sure that credit contracts further and faster.  Lending standards naturally tighten in a crisis; the issue to address going forward is how to prevent standards from loosening too much in the next boom – but this is at least several years down the road.  I’m in favor of starting early, but I do not like precipitate action just because you want to look busy and you could not agree on the more pressing issues, such as fiscal policy, support for the IMF, shoring up the eurozone, and so on.

It is true that one (among many) of the stated principles is: “Mitigating against pro-cyclicality in regulatory policy.”  But that is a general statement that is not mapped into operational requirements – except that the IMF and FSF should work together on this, which is a good way to make sure it doesn’t happen.  What officials have to deliver on, by the end of March, is substantive progress with regards to tougher and tighter regulation of credit.  There is a real danger that this action plan – within such a short time frame – can actually make the global downturn dramatically worse.

1. There is a vague statement of principles and some working groups are told to get busy. This would be my baseline view of what is going to happen. I’m not sure such an outcome would justify the carbon emissions generated by bringing 19+ heads of government (and some large entourages) to Washington – a conference call would have probably sufficed. But, as long as they agree to meet again reasonably soon (yet surely after January 20th), perhaps we may see the beginning of a process in which industrialized countries engage more productively on global economic and governance issues with large emerging markets.

2. In terms of upside, it would be great to see progress – perhaps more on the sidelines than in the main communique – on three main points. (For more on why these measures would be helpful, please see our latest baseline and, if you want even more, follow the links provided there.)

First, more fiscal stimulus from various countries could be announced. China, Germany and now it seems the UK have put something on the table. We’re still waiting for the French - perhaps they are waiting for a dramatic moment. But this US administration seems to be backing away from further stimulus, as well as away from supporting key, potentially systemic parts of the economy.

Second, more funding for the IMF could be put in place, at least on an interim basis. I really do not buy the argument, now heard in some official circles, that “the money will be there if the IMF ever needs it.” Have we learned nothing from the spectacular failure of a case-by-case-over-a-weekend approach to financial institution problems in US and Europe?

Third, serious discussion of the problems within the eurozone, and what can be done to head these off, could take place. I think some Europeans wanted this summit (and it was their idea) largely to show their domestic audiences that they can have global impact. Well, they certainly can have big – negative – global impact, if they don’t act quickly to shore up the eurozone.

3. In terms of downside, I would be afraid of some sort of public argument or spat. There may be a temptation for some countries to generate sparks. This could have political value for some electorates, but the effects on market confidence would not be good. I hope that whatever happens in the National Building Museum (the site of the plenary session) stays in the National Building Museum.

We should have some indications of how things are going by the end of Friday (today). Any big announcements will probably be floated or previewed in some way by 11pm Washington time. We’ll know a lot more after the end of the formal meeting, mid-afternoon Saturday, when we’ll see the final communique. Then, of course, come the press conferences and the spin.

And, in case anyone has forgotten the lessons of October 10th-12th (when the Europeans did a spectacular last minute U-turn on bank recapitalization), most of Sunday – US time – is also available. So feel free to go home and announce major new policy initiatives. But it’s not all of Sunday, as Asian markets open in the early evening US East Coast time, and their initial reaction can influence the broader passing of market judgment on Monday.

As we learn relevant things during the weekend, we will post the details; just subscribe – it’s free – to our feed or email updates if you are interested (see top right corner of our home page for details).

We are also beginning to see significant effects in lower-income developing countries. 

Part of this is just now becoming evident in their macroeconomies. Many of these countries are net sellers of commodities to the outside world, so they are seeing a fall in export revenue (albeit from generally high initial levels) and speed of this decline is more than a little worrying – this is the kind of shock that often throws countries’ public finances and other macro policies into some disarray.  In addition, while we do not yet have hard evidence on aid flows, these typically go down when a donor country hits any kind of economic speed bump, and almost all donors are now experiencing big slowdowns. (Yes, I know that some poor countries, and many poor people, were also hit hard by high food prices earlier in the year.)

We find ourselves working these issues directly in a course at MIT Sloan on Global Health Delivery, in which students work in teams trying to help health care projects in poor countries (this year Africa is the focus) – we are usually invited to work on a business-type aspect of these projects.  (It’s part of a larger set of courses, developed over the past decade, known collectively as Global Entrepreneurship Lab, or G-Lab, in which many of our students work around the world with entrepreneurial people, who invite us in to help solve specific problems.  We’ve worked on health issues before, but this is the first time an entire section – about 50 students from all over campus - has focused just on health for low income situations.)

The course has a public blog, run by Anjali Sastry (head of the course), and I refer you to that and to Global Health at MIT for more details on what we are doing and with whom we work (e.g., the Global Health Delivery people at Harvard have been immensely supportive and engaged).

I’d like to flag one key issue, which happens to be the topic of class today.  We have no trouble finding good projects and we work with amazing doctors and other medical professionals.  But one question they usually have is: how do we scale up?  The projects we see help thousands of people, but the need is to help tens of thousands or more.

What is the right way to scale up, when patients don’t have much money, when perhaps you don’t want people to pay for health care (it likely costs them a lot just to get to the clinic), and when the government never has much money?  The readings for today’s class are about Smile Train, aid effectiveness, and the WHO’s work on scaling up.  But we are looking at more, still small-scale models to see how exactly they could become more general – through being better run, or using money more effectively, or raising more money (remember: this is not a classroom exercise; these are the questions that leaders in this part of the global health field are asking us to work on).

And now add a global economic and financial crisis on top of all this.

Send us any relevant ideas, through comments here or through the course blog, and we (and the students) will report back on what exactly we learn from the hands-on project work, which reaches its most intense phase in January.

How likely is such a cross-country stimulus?  Well, the IMF’s revised forecast for global growth, released last Thursday, has been widely interpreted as merely confirming that the world economy is slowing down (and fast – it is remarkable to knock nearly a percentage point off the global growth projection, just a month after the last forecast went final.)  But the forecast can also be read as a reflection of the Fund’s exhortation to fiscal expansion and, in some parts, as an indication of where some parts of the G20 may be headed. For example, China’s growth for 2009 is now projected at 8.5%, which struck me as too high when the forecast came out.  Lucky for me that I dawdled in writing a critique, because China’s fiscal stimulus, announced over the weekend, makes higher growth somewhat more plausible.

The IMF is allowed, by its own rules, to include in the forecast fiscal (and other) policy moves that it knows to be “in the bag,” even if they have not yet been publicly announced.  But it can’t base the forecast on just probable or potential policy changes.  If the IMF knew about China’s package (as it almost surely did 3 days in advance), then this is built into the forecast.

So what else can we infer about imminent policy changes from the forecast, if we read it sort-of backwards in this fashion?  The thing that really struck me was what the forecast says about Europe, particularly France.

According to the forecast, headline growth in 2009 will be roughly the same in the U.S. and the Eurozone (minus 0.8 vs. minus 0.7).  But the IMF’s headline numbers are annual average growth rates, which are more affected by what happens at the beginning of a year (and actually, if you care about technicalities, by what happens at the end of the previous year).  To see the Fund’s view on economic dynamics within a year, you need to look at 4th quarter over 4th quarter projections, which are in the last two columns of their Table 1.1.

These show that the U.S. will decline by 0.5% in 2009, but the Eurozone will be flat (“–” in IMF table parlance means zero; I worked at the Fund for nearly 4 out of the past 5 years, but I could never get a straight answer on why they don’t write the rather more obvious “0.0″.)  This says that the Eurozone will recover faster than the US, which – given the problems with European banks, consumer confidence, housing and (most important) exposure to the ever-vulnerable East/Central Europe - is not so very obvious.

Furthermore, of the four major Eurozone economies, the forecast shows declines for three: Germany, Spain, and Italy (by the way, for Italy this Q4 on Q4 forecast for 2009 definitely looks too high).  So who saves the day?  According to the forecast, it is France, with growth of plus 0.2% Q4 on Q4.  (Perhaps helped by Belgium and the Netherlands, but this is hard to believe, given the state of their banks.)

Such a positive statement about France is striking and more than a little at odds with where things are currently going (e.g., the IMF is projecting minus 0.4% for France in 2008, Q4 on Q4).

But it would make sense if France has tipped its fiscal hand, and is indicating something big and bold is in the works (the European rules against big budget deficits have, in case you didn’t notice, now been effectively waived).  Perhaps it is something that will be announced in the run-up to the G20 meeting?  Could it be a fiscal package that will capture the imagination of the world, develop further the friendship with China, put pressure on the outgoing Bush administration, be warmly welcomed by newly elected Democrats, somewhat eclipse Gordon Brown, and (try to) make it clear that France has the credibility needed to dominate the international economic policy agenda?

1. Our conversation with Laura Conaway and Dan Costello, from Planet Money, which really emphasized how crisis of confidence in the financial system became a huge shock for consumers.  This both provided a human dimension and motivated our discussion of the economics around a potential fiscal stimulus and the finance around the G20 meeting.

2. Our interaction with Arvind Subramanian, from the Peterson Institute for International Economics, about what emerging markets could and could not aim to achieve at the fast-approaching G20 meetings.  This pushed us to look at the issues from a perspective other than that of the US or Western Europe.

3. The role-playing discussion, in which students argued (on behalf of a chosen country) what they would and would not offer at the G20 summit.  This really brought out how hard it will be to make substantial progress.  At the some time, it offered some glimmers of hope – the students were trying hard to find space in which they (and their countries) could cooperate.

Here is the link for the WindowsMedia stream:

http://web.mit.edu/smcs/sloan/2008/simon_johnson/sloan-simon_johnson-financial_crisis-E51345-04nov2008-1600.asx. (You may have to use Internet Explorer to use that link.)

Again, our technical advisers recommend WindowsMedia player version 9 or later (to provide all needed playback functionality).  MIT has a support page for Windows Media that should help if you have trouble: http://web.mit.edu/smcs/help/wmplayerhelp.html

Comments of all kinds are of course welcome.  We will repeat broadcast other crisis-related class sessions if there is sufficient interest (but not otherwise).