John Taylor is interviewed. I recommend clicking on “interview transcript,” since it is faster to skim and read than to watch an interview. At one point, the interviewer poses a question from Scott Sumner on whether the Fed was too tight with money in the fall of 2008. Taylor replies,

I think the Fed cut interest rates during that period just about right. I think it was basically coming down, it could have been a little faster at that point, and of course, GDP did fall tremendously. But I think if they had kept the interest rates along the same path it would have been fine.

The problems I saw were not so much a monetary policy at that stage, but the really ad hoc chaotic interventions that occurred around the time of the rollout of the TARP, not clear kind of actions with respect to what happened to Lehman Brothers. So, a lot of surprises and ultimately a lot of panic.

[UPDATE: Scott Sumner finds this response a tad unconvincing.]

The Financial Times reports,

The Federal Reserve is sitting on billions of dollars in paper profits from its controversial effort to unwind credit insurance contracts that AIG provided to banks such as Goldman Sachs, people familiar with the matter said…

At the time of their purchase, the CDOs had a face value of $62.1bn and a market value of $29.6bn. Now, the estimated market value of the CDOs is at least $45bn (£27.5bn), according to several people with direct knowledge of the portfolio.

This is consistent with the view that the problem was a liquidity problem, not a long-term solvency problem. It suggests that Bernanke was right and I was wrong. Time will tell. Thanks to Mark Thoma for the pointer.

The Wall Street Journal reports,

This year, of the world’s 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.

Read the whole thing. Economic freedom is now higher in seven other countries–Hong Kong, Singapore, Australia, New Zealand, Ireland, Switzerland, and Canada. If I were rich, I would buy properties in several of those countries, as a hedge against a U.S. fiscal meltdown.

Haiti ranks 141st, which puts it ahead of almost 40 other countries. The Dominican Republic ranks 86th.