Russ Abbott

VIX Implied Volatility Surges

Furthermore, the VIX time series doesn't lend itself to traditional option pricing formulas. So the use of those formulas in reverse to compute implied volatility doesn't make sense.

The Liquidity Tsunami

It sounds to me that if you look at what DeLong and Mussa are really saying it is that the Fed has done a good job.

Delong:

<blockquote>If all this isn't enough to keep the flow of funds to finance investment steady and so save America from large-scale cyclical unemployment, I will be genuinely surprised.</blockqu...

So DeLong believes that the Fed has probably saved the country from large-scale cyclical unemployment. That's good, right?

Mussa:

<blockquote>the US economy now needs to undergo at least a near recession if the Federal Reserve's easing is not to be excessive.</blockqu...

Well, we are undergoing at least a near recession. So the Fed's easing is not excessive.

Mussa's primary complaint is that

<blockquote>if the Federal Reserve's highly aggressive actions have really been warranted to protect the economy from substantial harm, then deep reforms of the financial system, including the Federal Reserve's policies and practices, are clearly needed to reduce the likelihood of such problems in the future. </blockquote>

Reforms are certainly needed. But this comment suggests a bit of sour grapes. If the only thing Mussa can find to criticize is that the Fed hasn't yet reformed the system, he must be saying that for now it has done the right thing.