Once again, here's a completely subjective rundown of the most noteworthy academic research that sprung forth from academia in 2008.

1) Subprime All the Time
What we learned, sort of learned, and should have learned about the financial crisis:

In the leadup to government bailouts this year, a number of commentators said that if the U.S. did succumb to some sort of systemic crisis, it would have shown that despite its wealth, it's no better than a banana-republic. But this view is now being challenged by Ken Rogoff and Carmen Reinhart. In a new NBER paper examining crises in 66 advanced and emerging countries since 1800, they find that:

[N]ot only is the frequency and duration of banking crises similar across developed countries and middle-income countries, so too are quantitative measures of both the run-up and the fall-out. Notably, the duration of real housing price declines following financial crises in both groups are often four years or more, while the magnitudes of the crash are comparable. One striking finding is the huge surge in debt most countries experience in the wake of a financial crisis, with real central government debt typically increasing by about 86 percent on average (in real terms) during the three years following the crisis.

That's the conclusion from the preliminary results of a new paper by Ekkehart Boehmer of Texas A&M, Charles Jones of Columbia, and Cornell's Xiaoyan Zhang. They studied the impact of the short-sale ban which lasted between mid-September to early October and found that:

the start of the shorting ban is associated with a sharp increase in share prices for affected stocks, consistent with most models of shorting constraints. Shorting activity drops by about 85%. Stocks subject to the ban suffered a severe degradation in market quality, as measured by spreads, price impacts, and intraday volatility.

The Libor-OIS spread is getting within striking distance of its pre-Lehman levels:

The big moves down in October were related to the bank recapitlization plan and the announcement of the Fed's programs to buy assets from the non-financial sector. It's harder to pin-down the exact reasons for the current southward trend. But it's worth noting that it coincided with the first junk-bond sale in six weeks.

Interesting set of charts from a presentation by Columbia's real estate guru Chris Mayer showing house prices relative to 50-year trends:

Mark Gimein points to

a legal precedent set in the Bayou case that should scare the heck out of anyone who once invested with Madoff but who managed to get out safely in the last few years: Any investors who managed to take out profits from a fund like Bayou before the fraud was revealed had to give the money back.

In this week's Off the Charts column, NYT's Floyd Norris describes how the young and old are having a very different experience so far in this one-year-old recession:

There are now more jobs than there were a year ago for every group over 55 years of age -- and fewer jobs for every group under 55.

With the economy in tatters and the Democrats in control of the presidency and Congress come January, it would seem like the perfect time for an expansion of various social insurance schemes -- a New Deal II.

But no doubt there are some on the right who think we shouldn't go too far towards becoming a social democracy, so one way to measure our leftward movement is by comparing our programs with those of Western Europe, where social Darwinism holds less appeal.

The Fed released the Q3 Flow of Funds report yesterday afternoon, and the news was not altogether surprising:

Dec. 11 (Bloomberg) -- U.S. household wealth fell in the third quarter by the most on record as property values and stock prices tumbled, highlighting the tattered state of consumer finances even before the most recent slump in lending.

In a recent EconTalk podcast, host Russ Roberts and Yale's Robert Shiller got into a good discussion over the origins of the subprime crisis, which Shiller largely attributes to bubble psychology. But Roberts offered an interesting test:

Shiller: It's this mysterious failure to perceive the possibility that home prices could fall that I think is the biggest single explanation for the events.

Roberts: I think that's part of it perhaps. Although, again, many of us were alive in the 1980's and do remember a time when housing prices -- certainly in the markets that had gone the craziest -- did fall, but that was a long time ago. People do forget it.

It's probably the last thing anyone wants to hear so soon after news of the gawk-inducing 533,000 lost jobs suffered last month -- but if history is a guide, it's only going to get worse from here.

That's because the majority of job losses in the 11 previous downturns came in the second half of the recession. We're 11 full months into the current one and most forecasters (what else do we have to go by?) think the recession will last through the end of next year.

I'd taken a hiatus from talking about the role -- or more precisely, lack of a role -- of lending standards in bringing down the economy, but a couple of developments yesterday pulled me back to it.

In his speech yesterday on the need for more action on preventing preventable foreclosures, Bernanke repeated the claim that declining standards share a large part of the blame for the current mess:

Some takeaways from the Fed Chairman's speech:

1) Tough talk on the need for banks to realize that the easy days are over:

Paul Krugman argues on his blog that Milton Friedman and Anna Schwartz's Great Depression hypothesis has "taken a hit":

A central theme of Keynes's General Theory was the impotence of monetary policy in depression-type conditions. But Milton Friedman and Anna Schwartz, in their magisterial monetary history of the United States, claimed that the Fed could have prevented the Great Depression -- a claim that in later, popular writings, including those of Friedman himself, was transmuted into the claim that the Fed caused the Depression.

In assessing Japan's decade-long, stop-and-start effort to repair the damages caused by its stock and real estate bubbles, Morgan Stanley's Robert Alan Feldman comes up with a plan that can be mimicked by other countries. Let's see how the U.S. matches up:

1. Economic strategy. The nation needs an approach to improving the supply side of the economy, be it through education, capital-deepening, technology or corporate reorganization. Strong corporate governance is a part of national economic strategy. The strategy must be formulated with global economic trends in mind.

Interest rates on 30-day commercial paper. A2/P2 is the rating given by credit agencies to the least prime -- but still above junk -- paper:

A little while back, I looked at how stock market volatility had jumped higher in the U.S. since Sep. 15, particularly in the last hour of trading. But the current downturn is a global one, so I thought I'd also take a look at a couple of other markets around the world and check out the interactions.

I grabbed hourly trading data for three indices: S&P 500, Japan's Nikkei 225, and France's CAC 40 -- I couldn't get it for the FTSE. The following chart shows the average change in the indices for a typical 24-hour period for 40 trading days prior to the Lehman bankruptcy:

In February, Barlcays estimated that if one major institution went down, there would most likely be between $36-$47 billion in losses due to counterparty risk in the credit default swap market as risk was repriced. A similar CDS study by BNP Paribas put the figure at $150 billion in potential losses.

But the repricing of risk extends just beyond the CDS market, IMF economists Miguel A. Segoviano and Manmohan Singh argue in a new working paper. Using data on banks' counterparty positions before the Bear Stearns collapse, the pair calculate the potential loss to the financial system from a repricing of risk across the entire OTC derivatives market:

According to the Philly Fed's Survey of Professional Forecasters -- 51 of 'em -- the current recession started in April and will last through June 2008:

Thirty-five panelists say their forecasts reflect the influence of a new fiscal stimulus package. The size of the stimulus package is estimated at $211 billion. Out of this amount, the forecasters predict that $69 billion will go toward government consumption and gross investment, $54 billion will go toward transfer payments, and $71 billion will be used for tax cuts. According to the forecasters, the stimulus package will begin to affect real GDP growth in the first quarter of 2009. The panelists think the stimulus package will add 0.6 percentage point to the annual-average over annual-average growth in real GDP in 2009 and 0.4 percentage point in 2010.

In discussing the recent federal funds oddities, there was some discussion of when the FDIC would start to charge banks for insuring fed funds transactions.

It turns out that the effective date is no longer Nov. 13, but Dec. 5. Via Wrightson-ICAP: