The sole purpose of this post is to retweet two of Tyler Cowen’s assorted links.

1. How to tell when a CEO is lying. I was expecting to click through and read, “His lips are moving,” but in fact it is a serious and interesting article.

2. Robert Bradley on Enron.

I once watched the DVD of “The Smartest Guys in the Room,” and that is everything I know about Enron. (Which is not to say I thought that the movie was accurate.) My sense is that when things got desperate, Enron generated profits by writing put options on their stock–not literally, but some of their special-purpose entities amounted to that. So when the stock started to go down, they incurred losses on the put options, which drove the stock down further, which increased the losses on the put options, and so on, with the result that they went from apparent soundness to bankruptcy very quickly.

The problem with sophisticated finance is that the geeks figure out fancy new ways to create out-of-the-money options and next thing you know some suit thinks that selling those options is an way to make easy money. Hence, Enron. Hence, AIG.

What the Bradley interview brings out is how tight the Enron folks were with government, which was really part of their business model. It is my view that the big-time finance that emerged over the past few decades also involved a high degree of entanglement with government–in saying that, I do not wish to infringe on any Simon Johnson or James Kwak trademarks. On the entanglement issue, I see the “financial reform” as making the problem even worse, which means that I am more despondent and cynical than Johnson and Kwak.