This blog is based on the premise that we have the tools (esp. the tools of supply and demand) to understand what has happened in the economy, and what will happen.
Professor Merton has the same view. Watch a video where he explains why:
- stock prices fell a lot in September, even without much change in the (already bad) housing fundamentals
- "complex securities" are not that complex (that is, undergrad econ tools can be used to understand them)
- even if the "complex securities" like CDS's are complex, they are no more complex than securities that have existed for centuries, such as equity in non-financial business firms.