Ouch. The WSJ’s Real Time Economics blog has a post linking to Raguram Raghuram (!) Rajan’s prophetic 2005 paper on the risks posed by securitization — basically, Rajan said that what did happen, could happen — and to the discussion at the Jackson Hole conference by Fed vice-chairman Kohn and others. The economics profession does not come off very well.

Two things are really striking here. First is the obsequiousness toward Alan Greenspan. To be fair, the 2005 Jackson Hole event was a sort of Greenspan celebration; still, it does come across as excessive — dangerously close to saying that if the Great Greenspan says something, it must be so. Second is the extreme condescension toward Rajan — a pretty serious guy — for having the temerity to suggest that maybe markets don’t always work to our advantage. Larry Summers, I’m sorry to say, comes off particularly badly. Only my colleague Alan Blinder, defending Rajan “against the unremitting attack he is getting here for not being a sufficiently good Chicago economist”, emerges with honor.

Update: One commenter asks why I didn’t say anything about the housing bubble in The Great Unraveling. Answer: TGU, published in 2003, was put to bed in April 2003, the day after US troops took Baghdad. The housing bubble was still in its infancy.