Getting a Grip on the Financial Crisis

Two must-read articles on the financial mess we now find ourselves in. One is a pretty quick read, the other is much more in depth:
James Galbraith NYT interview (short)
Niall Ferguson in Vanity Fair (long)

James Galbraith: "And most of them (economists) teach a theoretical framework that has been shown to be fundamentally useless."

Maybe fundamentally useless on a macro level, but those theoretical frameworks were often designed to game the system and maximize short-term profits.

Here's the money quote from Ferguson's article:

"There was, ...  Read Morehowever, another reason why Long-Term failed. The quants’ Value at Risk models had implied that the loss the firm suffered in August 1998 was so unlikely that it ought never to have happened in the entire life of the universe. But that was because the models were working with just five years of data. If they had gone back even 11 years, they would have captured the 1987 stock-market crash. If they had gone back 80 years they would have captured the last great Russian default, after the 1917 revolution... To put it bluntly, the Nobel Prize winners knew plenty of mathematics but not enough history."