字幕表 動画を再生する 英語字幕をプリント Prof: So for those of you who weren't here yesterday-- or, last class, first class, I'll say a couple words about what happened, basically four words. The course is really made of up four different elements. The first part is the standard financial theory course that grew up in the last ten years at a lot of major universities, pioneered by a bunch of guys who won Nobel Prizes in business schools. And it's the method, some of them quite clever and I think fun, methods for pricing financial assets and making optimal financial decisions. So you're going to learn all these tricks and how the financial system works, and you'll learn it both from a theoretical point of view, the way they thought of it in these finance schools, and also from a practical point of view since many of these very same problems come up all the time in the hedge fund I helped start. So that'll be the main part of the course, but there are three other things that I want to concentrate on in the course. So the second point is reexamining the logic of laissez-faire and regulation. This is a dramatic moment in our history now where there's tremendous pressure on-- temporarily anyway--on the government to establish all sorts of new regulations. There's also tremendous resistance to establishing the new sorts of regulations. So there's a debate going on now in Congress and in the halls of academia about what kind of regulations should we put in place, what regulations would have prevented the crisis we've just lived through. The crisis, by the way, which I don't think we're done with yet. So there's a very powerful argument in economics. The most famous argument in economics, the invisible hand argument that basically says markets work best when they're not encumbered by government interventions. So we're going to reexamine that argument in the context of financial markets. Then the third thing I'm going to discuss in this course at some length is the mortgage market and the recent crisis. After all, my hedge fund is a mortgage hedge fund. We founded it in 1994, by the way, which was-- the five years before that I was running the Fixed Income Research Department at Kidder Peabody, which was the biggest player in the mortgage market then on the sell side. The hedge funds buy mortgages, investment banks create and sell the mortgage securities. So I was running the research department at the firm that did twenty percent of the market in what's called CMOs, and then I changed to the buy side and was at a hedge fund that bought those kinds of CMOs, and bought sub-prime mortgage, CDOs, everything. So it seems I suffered greatly through the last two years of the mortgage crisis and it would just be foolish not to explain what was going on and what it felt like to be in a mortgage hedge fund while the rest of the world was collapsing around us. And for quite a while it's given me some great embarrassment to have been part of it all. On the other hand, now I feel like one of those survivors. Hundreds of our counter-parties and much bigger mortgage players went out of business and we didn't, so I don't feel quite as bad about it as I did before. And I don't know every detail of what went on in my hedge fund, because after all I'm only part time there, but there's a lot I do know about and so I'll try and tell you some of that. And then the fourth thing is Social Security. This is the biggest government program and it's a financial problem what to do about retirement, and Social Security is the biggest government program of all. The only thing close is the military budget in terms of annual expenditures. And so I'm going to explain how that works, and what the problem is, and how it arose, and what I think the solution is. So those are the four things the course is going to concentrate on. The mechanics of the course, again, are homeworks, every week there's going to be a homework with little problems illustrating what we're talking about. So there's one already on the web, Tuesday, today, every Tuesday there will be one on the web. It'll be due the next Tuesday. The sections will always meet between Thursday and Monday, so the problem set will come Tuesday. You'll have two days of classes on the material that the problem set will cover and then you can talk to the TAs about stuff between Thursday and Tuesday when I presume you'll do the problem set. And that's twenty percent of the grade. Twenty percent is the first midterm. Twenty percent is the second midterm and forty percent is the final. Two midterms takes a lot of class time, on the other hand, and it also takes a tremendous amount of effort by the TAs. And so I appreciate their willingness to grade two midterms, but I think you'll find it's helpful to study the course in two pieces than try to do the whole thing-- It'll be much better for you I found in the past to have two midterms. Oh, and one warning. The course doesn't require difficult mathematics, but for me, as I said in the first class, it's very interesting that there are so many subtle things that affect a financial decision, and you have to think about what you know and all the different things you know. You have to think about what the other guy knows who's taking the other side of the market. You have to think about what he knows about what you know, and you have to think about what he knows about what you know about what he knows, and all that thing in the end boils down to one number, the price. So it's a philosophically interesting problem, interactive epistemology. Some people have described economics as interactive epistemology. It's more complicated than standard epistemology and philosophy because there they go in circles thinking about what one person knows and whether you can know that you know and stuff like that. In economics you have to worry about what you know, what the other guy knows, what you know about what he knows about what you know etcetera. So it's a more complex problem, and yet at the end there's just one number which can be right or wrong. And so when I was a freshman here at Yale my roommate who was a classics major said that his subject was much harder than mine-- that was math--because all I had to do was be right. And so I'm going to take advantage of that simplicity and every problem is going to have a number that you're supposed to find. And so it's not complicated mathematics, but it involves lots of numbers. And so if you hate numbers you shouldn't take this course. And as I said before, there have always been people who, you know, you can be very smart. You can also have a great future in finance and not like numbers. You can like making deals and things like that not thinking in terms of numbers. So just because you don't like numbers and maybe shouldn't take this course doesn't mean you should be discouraged about finance. It's just how I happen to teach the course because that's what's comfortable for me. So I'm just warning you about it. It won't be hard, but it'll be relentless. I want to talk today about that second problem, about the logic of the free market and to do that I'm going to have to introduce a model. So it raises the question of what is a model in economics. Many of you have taken economics before. You sort of know what this idea is, but I think it's worth spending a minute on it because it represented a revolution in thought. So for an economist a model means you distinguish exogenous variables from endogenous variables. The exogenous things people can't control. They're just the weather and things like that. The endogenous variables are things they can control and you're trying to predict what the endogenous variables are going to turn out to be like, what will the prices be, what will the consumptions be, things like that. How much income will people have? Those are the endogenous variables. So you have a theory. So the theory is couched in terms of equilibrium. There's a bunch of equations which have to be satisfied, F of E and X. So given the endogenous variables and the exogenous variables, exogenous and endogenous, I wrote them in that order, there's a set of simultaneous equations, F, that have to be satisfied. And so you find equilibrium when given the exogenous variables E you find the endogenous variables X of E that solve that system of simultaneous equations. All our equilibrium models are going to have that form, and one very important thing they allow you to do, which is the heart of economic analysis is comparative statics. If you change the exogenous variable E it'll require a different X to solve the equation. So E has an effect on X in order to restore equilibrium. And so the prediction that a change in E has a certain effect on X is called comparative statics. Now, how would a historian describe that? A historian would say, "Well, that's counterfactual reasoning. The environment is E. Why are you bothering to tell me about what would happen if the environment changed from E to E-prime?" Well, that's the heart of economic analysis. So in history you hardly ever get much. People talk about it a little just to raise the question. How would the Vietnam War have gone if Kennedy hadn't been assassinated? So they all bring that up, but you get two sentences. "Oh, he was really going to pull out," or "Oh, he had been sending more advisors. It would have gone the same way." That's about it. In economics the heart of the thing is to go off on a tangent and figure out what would have happened if the environment had been different. So why do a model? Well, because many different settings can be described by the same model. So it just saves time. It makes things much simpler. From the counterfactual reasoning you're making predictions. It helps your understanding. And then for the purposes of the next few lectures the most important thing is there's some properties of equilibrium. Like, for example, equilibrium is so good you wouldn't want to interfere with equilibrium because it makes everyone so well off and it would be a terrible thing to regulate. So those properties of equilibrium are what we have to test the logic of. So there's an obvious critique you can make of modeling. The first person to make a model was Ricardo, who you I'm sure have heard of, the principle of comparative advantage. He was the first guy who didn't write verbally. He said, "Okay, I'm talking about international trade and why free trade is a good idea. I could make a verbal argument. That's what everyone else has done, but I'm not going to do it. I'm going to say, 'Suppose that England produced with one hour of labor three bottles of wine' and so on, " and he had a little numerical example. And he solved it and he showed that in that numerical example it's better to have free trade as paradoxical as it might have sounded at the time. The Portuguese had such lower labor costs why shouldn't English workers be afraid of being thrown out of their jobs when trading with Portugal where the labor was so much less expensive. Well he explained why that turned out not to be the case, but in terms of a model. So Malthus, who you've also heard of, a contemporary of his and his rival but also his friend, said, "This model stuff is ridiculous because if you start