A roundup of economic news from around the Web.

  • Stiglitz on Fannie, Freddie: Joseph Stiglitz, writing for the Financial Times, discusses the problem with a bailout of Fannie Mae and Freddie Mac. Even if they are too big to fail, they are not too big to be reorganized. In effect, the administration is indeed proposing a form of financial reorganization, but one that does not meet the basic tenets of what should constitute such a publicly sponsored scheme. First, it should be fully transparent, with taxpayers knowing the risks they have assumed and how much has been given to the shareholders and bondholders being bailed out. Second, there should be full accountability. Those who are responsible for the mistakes — management, shareholders and bondholders — should all bear the consequences. Taxpayers should not be asked to pony up a penny while shareholders are being protected. Finally, taxpayers should be com­pensated for the risks they face. The greater the risks, the greater the compensation. All of these principles were violated in the Bear Stearns bail-out… But the proposed bail-out of Fannie Mae and Freddie Mac makes that of Bear Stearns look like a model of good governance.”
  • Too Big to Save: On his blog, Brad Setser takes stock of the subprime crisis and its fallout. “The policy response to the subprime crisis has avoided the sharp adjustment that many feared. But it also meant that many of the underlying imbalances haven’t really corrected. The composition of the U.S. current account deficit has changed — the oil deficit is bigger, the non-oil deficit is smaller; the fiscal deficit is bigger and aggregate deficit of households is smaller — ,but the aggregate deficit remains large. And the rest of the world’s imbalances haven’t corrected either. China’s economy remains unbalanced. The oil surplus has gotten bigger. Hence it is possible to argue that risks are still increasing. Or it is possible to argue that the existing system has demonstrated its resilience under stress, and there isn’t good reason to think it will break now if it survived the stresses of the last year.So far, the U.S. has been both ‘too big to fail’ and ‘too big for the emerging world to save’ without incurring real costs.”
  • Economists and Brains: The Economist looks at the growing field of neuroeconomics, which uses technology to track parts of the brain used in decision-making. Colin Camerer of the California Institute of Technology, a leading centre of research in neuroeconomics, “is confident that neuroeconomics will deliver its first big breakthroughs within five years. Likewise, [Kevin McCabe, a neuroeconomist at George Mason University] sees growing sophistication in neuroeconomic research. For the past four years, a group of leading neuroeconomists and neuroscientists has met to refine questions about the brain and economic behavior. Researchers trained in both neuroscience and economics are entering the field. They are asking more sophisticated questions than the first generation ’spots on brains’ experiments, says Mr. McCabe, such as ‘how these spots would change with different economic variables.’ He expects that within a few years neuroeconomics will have uncovered enough about the interactions between what goes on in people’s brains and the outside world to start to shape the public-policy agenda — though it is too early to say how.”

    • Compiled by Phil Izzo