Paul Krugman fills me with a sense of despair. The professor of Economics at Princeton University and Nobel-prize winner doesn’t seem to understand structured finance. Yet he persists in shouting about it from his (very prominent) platform in The New York Times.
In January 2008 I labelled Krugman irresponsible for the way he criticised structured finance. He damned financial innovation, declaring that it should always “strike fear into investors’ hearts”, and lumped CDOs, Sivs, RMBS and ABCP into an “alphabet soup” that was “sold on false pretences” and lured investors into taking more risk than they realised.
No one realised. Banks don’t like losing money;...