Grasping Reality on TypePad, by Brad DeLong

William Sterling of Trilogy Global Advisors has an interesting new paper on the abrupt changes in financial markets subsequent to Lehman's bankruptcy on September 15, 2008. Sterling's paper is in part a response to earlier analyses by John Taylor (2008, 2009) and John Cochrane and Luigi Zingales.... Sterling questions the meaningfulness of the LIBOR or OIS indicators during these weeks given that markets seized up and little trading activity was occurring in these instruments. Sterling instead proposes to take a look at Bloomberg Financial Conditions Index, which Bloomberg launched in August 2008. The index is based in part on the observations by Rick Mishkin on some of the regularities observed in earlier historical financial crises...

In the spirit of EBITDA, Ajusted OIBDA and the like, I hereby propose a new metric: Trade balance before oil and China, or TBBOC (pronounced "Tupac"). Doesn't it make you feel better already?

There is a real danger that a collision between climate policy and trade agreements could derail two critical goals: controlling climate change and expanding trade. But this danger is avoidable.... [I]t is politically unrealistic -- and unwise -- to try to enact a cap-and-trade system that puts manufacturers in the United States at a competitive disadvantage with those operating overseas that do not produce under comparable requirements. It makes no sense to impose a cost on those producing steel, autos and other goods, only to have them shift jobs and pollution to China or India -- which are wary of binding international obligations on emission reductions.... The two means of "leveling the carbon playing field" in bills before Congress -- imposing additional "border charges" on carbon-intensive imports and subsidizing domestic producers -- are being criticized by many U.S. trading partners as potential World Trade Organization violations...